The Financial Times’ Pensions-Expert website recently posted an article titled, “What does the future of ESG disclosure look like?” We think it’s a good question, given the range of regulations and standards on ESG disclosures in markets around the world, but the answer is not clear.
What is clear is that pension fund trustees are becoming more aware of the importance of sustainability risks and ESG reporting requirements. The article cites research from the Pensions Management Institute and BMO Global Asset Management stating that 53% of trustee boards now consider ESG to be an important agenda item, compared to just 29% only a year earlier.
Pensions-Expert goes on to state that climate-related disclosures across the FTSE 100 quadrupled between 2015 and 2020. Growth is expected to continue as the Taskforce on Climate-related Financial Disclosures (TCFD) just became mandatory for large companies in the UK. Separately, the senior director of global industry standards at the CFA Institute expects the International Sustainability Standards Board to issue climate-related disclosure standards that will “create adherence within major capital markets.”
Some predictions in the article that made us nod our heads in agreement:
- Disclosures will evolve to focus on what is most material to each company;
- Environmental disclosures will go beyond measuring a firm’s carbon footprint to include impacts on biodiversity, waste, water scarcity and availability, and chemical pollution;
- There will be calls for more disclosure on social issues such as workforce rights and modern slavery in supply chains
The article notes that efforts to improve ESG disclosures face several barriers, including a lack of a universal taxonomy and data standards and a lack of ESG expertise (we’re nodding our heads again). In essence, we are in a transition period with respect to ESG integration and reporting. As the head of sustainability research at Lombard Odier noted, pension trustees need to identify partners with “the capabilities, expertise and mindset to help them navigate the transition.”
At OWL ESG, we seek to provide investors with truly useful ESG metrics and analyses, and to help companies understand how stakeholders and investors view their sustainability initiatives and track-record. This article confirms the growing need for the kind of unbiased information we offer.