US institutional investors ask asset managers for more transparent ESG reporting

Written by Adam Cadle

22/02/2021

Nearly half of US institutional investors are asking asset managers to report on the greenhouse gas emissions (GHG) and carbon intensity of a portfolio (46%) and security-level exposure to climate risk (46%), new research has shown.

According to the report Cerulli Edge – US Institutional Edition, this is a result of increasing numbers of investors becoming concerned about how climate change and a shift to a low-carbon economy could impact the risk and return outcomes of their portfolios.

Close to one-third of asset managers also require or plan to require data in the next 24 months on portfolio-level exposure to climate risk and scenario testing metrics for climate change.

While many asset owners ask their individual asset managers to measure and report on their portfolios’ carbon footprints, most institutions polled have not established targets for their overall investment portfolio as they seek to reduce its full carbon footprint. “To bring it to the next level, asset owners need to commit to these activities in their investment policies,” the report said.

Nearly one-third (32%) of asset owners require and more than one-third (38%) plan to require their asset managers to report on thematic metrics, displaying how their investments make measurable social and environmental impact.

More than one-third (39%) of asset managers surveyed cite that limited/selective disclosure of ESG data from companies as a major challenge. Insufficient data from third-party providers and subjectivity of ESG factors in investment analysis were also rated as top challenges. While many frameworks for measurement exist, there is no industry-wide standard for impact reporting and measurement. The United Nations (UN) Sustainable Development Goals (SDGs) are the most widely used method to measure impact, with 92% of managers aligning their impact investment strategies’ specific contributions to the SDGs.

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