Private markets managers are failing to provide their clients with the information they need to effectively manage climate risks, according to research by Hymans Robertson.
The pensions and financial services consultancy warns that this lack of data has significant implications for both defined benefit and defined contribution pension schemes’ ability to meet their governance and reporting obligations under the Task Force on Climate-related Financial Disclosures (TFCD).
In early 2022, Hymans Robertson asked the managers used by its clients for climate data.
The firm said: ”59 managers and 137 different funds across private debt, private equity, real estate and infrastructure were approached and asked to complete a standard survey on their funds. We assessed the responses provided by the managers to gauge the current state of the market.”
The research assessed the level of climate data asset managers could provide on their funds across four asset classes: private debt, private equity, real estate and infrastructure. It revealed a “worryingly low level of engagement” from some asset managers with just over two-fifths (42%) of managers providing data on all funds and a further 14% of managers providing data on some of their funds, according to Hymans Robertson.
Disappointingly, nearly half of managers (44%) approached did not respond, raising concerns as to whether managers are prepared to meet expected requests for climate information, the researchers said.
The research also highlighted a significant variation in the depth of information disclosed by respondents, with the reporting of carbon emissions data not yet commonplace. Managers of property and infrastructure funds are better prepared with just under half - 44% for property and 48% for infrastructure - providing data on carbon emissions. In contrast, private equity and private debt managers were able to report significantly less information on climate issues - no private debt managers in the survey provided carbon emissions data.
Simon Jones, head of responsible investment at Hymans Robertson, said: “Our research lays bare just how important stewardship is when it comes to managing obligations around climate risk. The need for asset owners to assess climate risks and report on carbon emissions has been well signposted which has, in turn, created an expectation that asset managers will be able to provide this data. Ensuring that requirements are clearly communicated, and expectations set, is therefore critical.
“The need for data will not diminish and it is incumbent on asset managers to continue to work with underlying investee entities to improve data availability. Where data may be challenging or uneconomic to collect, transparency is vital to provide confidence that climate risks are being properly managed. Efforts are needed to improve data provision.
“We know there will not be a short quick fix, but all organisations need to recognise the importance of this issue. We expect that asset owners will increasingly seek to differentiate managers on how they address climate risks and the use of minimum standards for climate reporting is likely to be a consideration for our clients. Being able to show year-on-year improvements in both data quality, and the outcomes that are being represented will build confidence that climate change is being properly addressed.”
Recommendations
• Asset managers should continue to work with underlying investee entities to improve data availability. Where data may be challenging or uneconomic to collect, be transparent as to the actions that can be taken to provide confidence that climate risks are being properly managed.
• Asset owners should consider adopting a data quality or data availability metric within their TCFD governance framework. The ability to challenge asset managers to improve data collection and reporting will allow the effective demonstration of stewardship and clearly measurable outcomes.
• Asset owners, when selecting managers for new private markets mandates, to consider the use of minimum standards for climate data reporting to differentiate between providers.
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