Panelists at the SS&C Intralinks Strategic Insights Summit in London said institutional investors are seeing a “tectonic shift” in ESG reporting due to pressure from all sectors of the industry.
The comment was made during a panel entitled “How the Regulatory Environment is Reshaping ESG Investing in EMEA,” where panelists discussed how ESG regulation is We looked at how companies are responding and what needs to be done for the future.
Vesselina Haralampieva, lead attorney at the European Bank for Reconstruction and Development, says ESG is “important to company performance”. Rather than being driven solely by risk aversion, ESG considerations are key to creating value and presenting a range of new opportunities for industry participants.
Regulations are “broadly aligned” across jurisdictions, but Haralampieva still warns there are differences between them. This concern was endorsed by his partner Scott Newton, managing Thinking Dimensions. Companies “really want to do the right thing,” he added, but working in multiple markets can make full compliance difficult.
Coordinating cross-border regulations is an issue that the industry urgently needs to address, which Haralampieva admitted was “a difficult task.” There is a movement for better convergence, but this is a “work in progress” and will take quite some time.
Regulations address the issue from different angles, but they all add layers to the underlying principles, said Oliver Johnson, Mercer’s ESG head of climate asset management. In fact, they share themes, reporting bases and results. Each version of the regulation “doesn’t reinvent the wheel,” he quipped. It is therefore not impossible to formalize and standardize them into a single framework.
That said, he warned that businesses need legal, technical and reporting support to keep up with regulations and ensure compliance requirements are met. Newton emphasized that companies want to understand what to report and what data to use. With so many data sources available, he continued, it can be difficult to decide which ones are reliable.
Additionally, the industry’s global connectivity can present challenges as to what level of data needs to be reported. “There is no solution for now,” Newton said of the problem. Resolving this issue would be very beneficial. “With data and transparency, you can make better decisions,” continued Newton, citing the governance, risk management, and performance benefits of clearer information.
Commenting on how far the industry is from converging on ESG reporting, there was broad agreement that it will be a gradual process. Johnson asserts that Europe is leading the way, predicting that the “diet version” of the EU framework seen in Asia-Pacific and the United States will evolve over time to meet a single standard. . Haralampieva stressed that businesses should not be slowed down by reporting or regulatory compliance, but should see it as an opportunity to bring opportunity and value to their business. Newton suggested that industry leaders drive convergence and put standards in place that would become widely adopted within their chains of supply. He added that he optimistically expects the government to converge on his ESG reporting.
Many companies are overwhelmed when considering ESG due to the wide variety of topics covered by ESG. Newton suggests that an organization should start by stating its values and how they align with them. If you don’t focus on a specific area, “you can spend all your time on reports,” he warns. The report must be statistically valid and accurate, he reminded the audience, adding that this could be a challenge if standards for certain reporting requirements, such as biodiversity, do not yet exist. added that there is
Noting that there is a “knowledge gap” between jurisdictions, Haralampieva said the Eastern European market is ill-prepared for SFDR II due to lack of data and funding. She argued that companies need to promote policy and education by sharing information among senior executives.
Newton offered advice to companies beginning their ESG efforts and assured the audience that change can be positive behavior. He said corporate boards should be the starting point for change, which would then expand to broader initiatives.
Haralampieva reiterated the importance of clearly identifying commitments, setting goals and “dedicating time for further engagement.” It’s also important, he said, to disclose these plans and stick to these commitments to avoid criticism or greenwashing allegations: “Be sure to do what you put on paper.” he concluded.