December 1, 2017 Read More →

Pressure From Institutional Investors for Better Climate-Risk Metrics

SNL:

Major asset managers are actively assessing environmental, social and governance risk factors in their portfolios to satisfy the demands of institutional clients, putting momentum behind the adoption of sustainable accounting standards by larger corporate entities.

The lingering question behind initiatives to integrate these environmental, social and governance, or ESG, standards in investment portfolios centers around an absence of what can be defined as ESG material risks to a company’s performance and how such risks should be disclosed to shareholders in securities filings.

While the broader universe of public companies have been resistant to making additional disclosures, a growing number of institutional investors and asset managers are taking it upon themselves to advocate for ESG factors from the buy-side as a starting point, putting pressure on corporate issuers to accommodate their demands, panelists observed Nov. 30 at the Sustainability Accounting Standards Board, or SASB, symposium in New York.

“In 2017, the conversations have really changed, where there is a lot of interest in true ESG integration at the portfolio level,” State Street Global Advisors Executive Vice President and Chief Investment Officer of Global Equity Beta Solutions Lynn Blake said, speaking at the SASB forum. “There are certain regions around the world where ESG integration is table stakes … and the U.S. is probably the laggard in these conversations.”

SASB, which released its “State of Disclosure” report at the event, aims for its framework to give specific sectors guidelines for which ESG factors could be considered material risks. The report highlights the existing disclosures made by major public companies, despite the lack of a standardized framework, and advocates for uniform standards.

Similar efforts have begun cropping up in certain industries, with PPL Corp.’s Vice President for Public Affairs Christine Martin noting at the SASB forum that it is among the companies contributing to a forthcoming effort by the Edison Electric Institute to standardize disclosures related to greenhouse gas emissions and climate risks across the regulated utilities industry.

Though what constitutes ESG risk factors for a company may not always be clear initially, a push to develop more consistent metrics across different industries appears to be emerging.

More ($): Fund managers assess ESG risks, pressuring corporations for greater disclosure

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