One of the most profound changes the capital markets has seen in some time is the rise of investors’ interest in all things ESG – both institutional and retail. According to Bloomberg Intelligence, ESG-related assets are set to balloon from approximately $35tn at the end of 2021, to $41tn at the end of this year and to $50tn by 2025. ESG considerations by investors when making an investment decision is quickly becoming the norm rather than the exception.
From asset owners to fund managers to the companies themselves, market participants across the investment spectrum all have a vested interest in addressing to the changing socio-economic conditions that the world finds itself in. Greenhouse gas emissions, gender and ethnic diversity across the workforce and in the boardrooms, improved governance practices – as Bob Dylan notes, “The Times They are A -Changin.” These changes, though, are fraught with complexity. Education, politics, regulation, standardization – all play a role in how the industry moves on from the why to the how.
What Does ESG Reporting Constitute?
ESG reporting is the disclosure of data that explains the impact of a company across three areas: environmental, social and governance performance. While ESG reporting is not new, its purpose has grown in importance in recent years as the trend for socially-conscious investments grows. Here again, the rising need for ESG data and reporting adds yet another layer of complexity for investors as they seek to make informed decisions about which companies to invest in.
A Round-Up of ESG-Focused Sustainability Working Groups
There are a number of industry groups that have been formed in order to address the aforementioned how. While many of these are fairly new, some are extensions of existing organizations such as CAIA, ILPA or the CFA Institute that have seen a need for better investor education on ESG investing with some proposing new standards in guidelines to address some of the challenges being faced with data, standardization and reporting efforts.
CAIA – ESG resources for alternative investment allocators. CAIA has also formed the Independent DEI Advisory Council, comprised of CAIA Members and industry allocators to help guide the organization in understanding where it can make the greatest impact and leverage its unique strengths to create meaningful change. Participants: Asset Owners
Carbon Disclosure Project (CDP) – CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Participants: Asset Managers, Companies, Government
Climate Action 100+ – formed in the wake of the 2015 Paris Agreement and formally launched in December 2017, the group aims to work with the companies in which they invest, to secure greater disclosure of climate change risks and robust company emissions reduction strategies. The group has over 615 members with $65tn in AUM represented. Participants: Asset Owners, Asset Managers
The Diversity Project – The purpose of the Diversity Project is to accelerate progress towards an inclusive culture in the investment and savings profession with a number of global pension, consultants and managers as part of its membership. The Asset Owner Diversity Charter is an initiative created by the Asset Owner Diversity Working Group in conjunction with The Diversity Project. Its Asset Owner Diversity & Inclusion Questionnaire is available on the DiligenceVault platform. Participants: Asset Owners
Global Impact Investing Network (GIIN) – The GIIN Initiative for Institutional Impact Investment supports institutional asset owners seeking to enter, or deepen their engagement with, the impact investing market, by providing educational resources, performance research, and a vibrant community of practice. Participants: Asset Owners
Global Reporting Initiative (GRI) – GRI helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts. The organization provides the world’s most widely used standards for sustainability reporting – the GRI Standards. It allows any organization to understand and report on their impacts on the economy, environment and people in a comparable and credible way, thereby increasing transparency on their contribution to sustainable development. Participants: Asset Managers, Companies, Government
ILPA – The organization’s due diligence questionnaire incorporates an ESG section aligned with the Principles for Responsible Investment’s LP Responsible Investment DDQ, as well as an enhanced Diversity, Equity and Inclusion questionnaire. The template is available on the DiligenceVault platform. We also offer a discount to the platform for ILPA members. Participants: Asset Owners, Asset Managers
Impact Investing Institute – UK based and launched in 2019, the Impact Investing Institute provides research, education and advocacy programs to accelerate the growth and improve the effectiveness of the impact investing market in the UK and internationally. Participants: Asset Owners, Asset Managers
Institutional Allocators for Diversity Equity & Inclusion (IADEI) – IADEI is a consortium of asset owners, primarily endowments and foundations, that seeks to drive diversity, equity, and inclusion within institutional investment teams and portfolios and across the investment management industry, including directing capital toward diverse fund managers. Participants: Asset Owners
Institutional Investors Group on Climate Change (IIGCC) – The IIGCC is the European membership body for investor collaboration on climate change and the voice of investors taking action for a prosperous, low carbon future. IIGCC has more than 375 members, mainly pension funds and asset managers, across 23 countries, with over €51 trillion in assets under management. Participants: Asset Owners, Asset Managers
International Sustainability Standards Board (ISSB) – The ISSB is part of the IFRS Foundation, a not-for-profit, public interest organization established to develop a single set of high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards. The goal of ISSB is to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions. Participants: Asset Owners, Asset Managers, Companies, Government
Intentional Endowments Network – A consortium of leading endowments that seek to enhance financial performance by making investments that advance an equitable, low carbon, and regenerative economy. It offers a guide for plan sponsors evaluating the addition of ESG funds to retirement plans, and steps outlining how to advocate for ESG integration in retirement plans. Participants: Asset Owners
InvestEurope – in March, 2019, InvestEurope issued their Guide to ESG Due Diligence for Private Equity GPs and their Portfolio Companies. The reporting template is available on the DiligenceVault platform. Participants: Asset Owners, Asset Managers
Level 20 – is an organization dedicated to improving gender diversity in the European private equity, with the goal for women to hold 20% of senior positions in the industry. Participants: Asset Owners, Asset Managers
The Net Zero Asset Managers Initiative – Launched in December 2020, The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. The initiative has over 236 signatories with $57.5tn in AUM represented. Participants: Asset Managers
PensionsForPurpose – exists as a bridge between asset managers, pension funds and their advisors to encourage the flow of capital towards impact investment. The consortium consists of: 130+ Affiliates (asset owners, trustees, independent advisers, researchers, journalists and government bodies,) 100+ Influencers (asset managers, investment consultants and legal firms) and 20+ Network Supporters (peer organisations who have a similar commitment to raising the profile of impact investment). Participants: Asset Owners, Asset Managers, Government
Principals for Responsible Investment (PRI) – The Limited Partners’ (LP) Private Equity Responsible Investment Due Diligence Questionnaire (DDQ) has been developed to help investors understand and evaluate a general partner’s (GP) processes for incorporating material environmental, social and governance (ESG) risks and opportunities into their investment practices. This effort is part of a broader United Nations commitment rooted in the 17 Sustainable Development Goals (SDGs) initiative developed in 2015. The UN PRI DDQ is available on the DiligenceVault platform. Participants: Asset Owners, Asset Managers, Government
Task Force on Climate-related Financial Disclosures (TCFD) – The Financial Stability Board established the TCFD to develop recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions and, in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks. The Task Force consists of 32 members from across the G20, representing both preparers and users of financial disclosures. Participants: Asset Owners, Asset Managers
The Future of ESG Investing
As the popularity of ESG investing continues to grow and evolve, so does the ESG investing strategies and technologies that support them. The DiliigenceVault platform provides a framework that helps systematically collect and monitor ESG data that is critical for investors, regulators and asset and fund managers alike. To learn more, or schedule a demo, please do not hesitate to reach out to us at any time!