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Reporting on responsible investing, ESG, ethical, carbon and stewardship – why do you need it?

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by BITA Risk
| 03/08/2023 12:00:00

Daryl Roxburgh - President and Global Head BITA Risk®, part of the corfinancial® Group, investigates reporting on responsible investing, ESG, ethical, carbon and stewardship, why do you need it and how do you do it?

Responsible Investing (RI) reporting by private wealth managers is rising in importance as society as a whole takes more interest in how invested companies behave, their impact and what they, as investors, can do to influence them. Expectations around behaviour regarding these issues have risen exponentially in the recent past, and so has the general understanding of climate change risks. As a consequence, wealth managers need to describe and demonstrate that they are seeking positive change through RI and minimise their Environmental, Social and Governance (ESG) risks.

As interests rise, so too have the terminology and the metrics to measure RI. Within the financial domain, this has been driven by investors and regulators, as well as companies themselves, who recognise that a successful future is inextricably linked with all the elements of RI. Indeed, in many cases, client utility is not just linked to investment performance; it is also linked to RI.

BITA Risk thinks of RI – and therefore, management and reporting – in four groups:

  1.  RI risks – identifying which portfolio investments face risks due to climate change, social media, and environmental taxes. This may also include ethical exposures in controversial areas and general involvement in controversies. Climate change and carbon metrics fall into this group too.
  2. RI opportunities – whether new emerging technologies to counter or adapt to climate change or existing products and services that can easily adapt.
  3. Client preferences – the things that are particularly important to the client. Whereas points one and two above are a fundamental part of investment management, client preferences are an additional layer and may cover ESG, ethical and product factors as both positive and negative screens.
  4. Stewardship – what is the wealth management firm doing to demonstrate its active role in driving the issue of RI in the firms invested in. This demonstrates value add.

This data needs to be at the investment manager’s fingertips for a client portfolio to make it an integral part of the investment process, as well as in reporting.

Most, if not all, investors would like to have ESG and RI data and measurements included as a standard part of the reporting process woven through it, like with other metrics. This is particularly pertinent when it comes to the next generation of investors who consider RI performance to be on par with performance – and rightly so.

The regulator, too, is another key driver of ESG reporting. The EU implementation of the Sustainable Finance Disclosure Regulation (SFDR) in March 2021 effectively created three fund designations (Article 6, Article 8, and Article 9) based on the level of the investment manager’s incorporation of ESG characteristics in the investment decision-making process. This is matched in the UK by SDR and TCFD, which brings a detailed level of carbon and climate reporting. These regulations require certain disclosures from investment managers about the implications of sustainability risks on both their funds and firms.

The dovetailing in demand from investors and regulators alike has led to vast improvements in RI metrics and frameworks to at least attempt a common set of standards that is meaningful to all and means that investment management companies are comparing like with like when it comes to different companies and match that to investor profiles. What has to be remembered is that ESG assessments are aligned with the research methodology of a data vendor, and these are 1) not necessarily the same, and 2) when aggregating detailed factors up to an overall score, the weighting and methodologies can be very different. So, it should not be surprising when different vendors have different scores, they may not be measuring the same thing.

Indeed, RI represents an opportunity for investment management firms to distinguish themselves from competitors and provide something meaningful and actionable to their clients. Alignment with client goals as well as risk and suitability frameworks are key, making investment returns and RI crucial going forward.

Getting ESG reporting right is important. It affords investment managers the chance to enhance their investment decision engine, fine-tune customer reporting capabilities, and augment their internal stewardship processes to meet and potentially exceed client expectations. RI of all types is needed in increasingly equal measure and a robust reporting tool is crucial! In our second article in this series, we will look at how to make this work in practice, dealing with data and giving investment managers the key tools.

If you would like to discuss any of the points raised here, please contact BITA at or see more information on our solution here.