A group of investment consultants working in the UK has come up with a list of environmental, social and governance (ESG)-related metrics for all public equity and public credit asset managers to report on, or work towards being able to report on, as soon as possible.

The Investment Consultants Sustainability Working Group (ICSWG) said the list was based on metrics that institutional investors were increasingly seeking to collect from asset managers.

Anthony Soothill, chair of Telefonica UK Pension Plan Trustees, is said to have been a key driving force behind the metrics list initiative.

He said pensions were “in the vanguard of ESG” but that the absence of a standard approach made it difficult to assess different products and investment managers.

“This list, if adopted, would enable investors like us to make decisions based on a set of simple, clear and consistent metrics across the whole range of investment products,” he said.

“By doing so it would also make what we do on ESG more transparent and understandable to our members. I would encourage all managers to adopt it.”

There are 12 metrics on the list. They include those already required under the Task Force on Climate-related Financial Disclosures (TCFD) framework, such as absolute carbon emissions and carbon footprint, as well as social and governance metrics such as the independence of boards and violators of the UN Global Compact Principles.

ICSWG said that by covering the metrics in one guidance document, it hoped to help managers focus their efforts to produce appropriate data and ultimately support investors in obtaining the desired level of transparency.

Cadi Thomas, Isio

“This is a massive step forward in standardising the ESG data reporting that managers provide”

Cadi Thomas, deputy head of ESG research at Isio

“This is a massive step forward in standardising the ESG data reporting that managers provide,” said Cadi Thomas, deputy head of ESG research at Isio and one of the members of ICSWG who developed the list.

“Not only will these metrics enable our clients to efficiently assess their portfolios with regards to ESG risks, we hope it will encourage greater efforts to improve scores, which can only create better outcomes for the environment and society as well as members of pension schemes.”

The ICSWG, which was formed in 2020 and counts 19 member firms, will maintain and update the list on an annual basis. It said a number of metrics would be considered in future that currently weren’t included due to coverage and/or methodological issues, including Scope 3 emissions, implied temperature rise, and biodiversity measures.

Engagement definition

One of the metrics already included in the guide is “climate-related engagements”. The definition of an engagement is that which was set out in a stewardship reporting guide published by the ICSWG earlier this month, namely “a purposeful, targeted communication with an entity on particular matters of concern with the goal of encouraging change at an individual issuer and/or the goal of addressing a market-wide or system risk”.

Regular communication to gain information as part of ongoing research should not be counted as engagement, according to the new ESG metrics guide.

ICSWG indicated it would be announcing “broader asset manager principles” group in the coming months.

Publication of the ESG metrics guide comes as the UK government seeks to implement mandatory climate change reporting throughout the economy, with regulations already adopted for pension schemes.

Last month the Department for Work and Pensions launched a consultation on new draft guidance laying out a requirement for pension schemes to show how their investments are aligned with the goal of limiting the increase in the global average temperature to 1.5°C above pre-industrial levels.

The guidance also sets out an increase in government expectations for stewardship best practice.

There have also been efforts to standardise ESG reporting in private markets. Last month a group of pension funds and private equity managers announced they had agreed on a core set of six initial ESG metrics, drawn from existing frameworks, for GPs to report in a standardised format for underlying portfolio companies.

The plan is for the ESG Data Convergence Project to meet annually to assess the prior year’s data, and to refine and build on the initial metrics, prioritising materiality.

The members of the ICSWG are Aon, Barnett Waddingham, bfinance, Broadstone, Buck, Cambridge Associats, Cardano, Hymans Robertson, Isio, LCP, Mercer, MJ Hudson, Allenbridge, Momentum, Punter Southall, Redington, River and Mercantile, SEI, Willis Towers Watson, and XPS Investment.

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