ESG Reporting for Investors: Trends and Drivers

ESG Reporting for Investors: Trends and Drivers

Dr Rory Sullivan and Dr Ian Woods examined 120 reporting instruments across the nine jurisdiction across 9 global jurisdictions in Chronos’ latest work with the PRI on ESG reporting trends for investors.

The Principles for Responsible Investment, supported by Chronos Sustainability, has published a briefing paper, Review of Trends in ESG Reporting for Investors, providing an overview of the environmental, social and governance (ESG) reporting landscape for investors and of the key trends that are driving this reporting. The analysis will inform the future development and implementation of the PRI’s reporting and assessment (R&A) framework.

The research involved a review of the reporting requirements in the nine jurisdictions where the majority (over 80%) of PRI signatories operate. For analytical purposes, these were be grouped as follows:

·       High-regulation jurisdictions - the EU, France, Hong Kong and the UK. These are characterised by a broad set of reporting requirements and guidelines across the investment process and for multiple subject areas. Most of these requirements and guidelines are mandatory for both asset owners and investment managers.

·       Medium-regulation jurisdictions - Australia, China and Japan. These are characterised by the use of quasi-mandatory rules, e.g., regulatory guidance or industry association standards, and voluntary mechanisms for ESG reporting, with reporting requirements tending to be less prescriptive than those in high-regulation jurisdictions.

·       Low-regulation jurisdictions - Canada and the US. These are characterised by their reliance on voluntary or quasi-mandatory reporting and generally limit the scope of reporting in terms of the asset owner or investment manager coverage, the ESG issues covered and the detail of any reporting. It is pertinent to note that both Canada and the US have significant regulation at the regional/state level.

In total, we reviewed some 120 reporting instruments across the nine jurisdictions, analysing each in terms of aspects such as who is required to report; the audience for this reporting; whether the reporting requirements are mandatory or voluntary; whether the reporting requirements apply to the firm as a whole, to asset classes or to funds; the subject of the reporting requirements.

The key findings from the research are:

1.     The overall number of investment-related ESG reporting requirements on asset owners and investment managers is rising, although the number of regulations on investment-related ESG reporting varies significantly between jurisdictions.

2.     As a broad reflection, those jurisdictions that have mostly accepted that considering ESG issues as part of investment decision-making is consistent with fiduciary duty have have the most extensive reporting requirements.

3.     In the high regulation jurisdictions, the focus of reporting is moving from the histories emphasis on stewardship policies and proxy voting towards greater reporting on how responsible investment policies and commitments have been implemented, and the outcomes – both financial outcomes and social and environmental outcomes/impacts – that have resulted.

4.     There is growing emphasis on ESG issue-specific reporting. This is most obvious in relation to climate change (e.g. requirements to report in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)) but we are also seeing the emergence of reporting frameworks on issues such as biodiversity (e.g. the Taskforce on Nature-related Financial Disclosures) and human rights.

5.     We are a long way from seeing global consensus on what ESG information investors should report.

You can read the full briefing paper, here.