Navigating The Thicket Of ESG Metrics – Todayuknews TodayuknewsNavigating The Thicket Of ESG Metrics – Todayuknews TodayuknewsNavigating The Thicket Of ESG Metrics – Todayuknews Todayuknews
Impact Investing Forum 2023
London. Dec 05-06, 2023.
While sustainable investing can be rewarding for wealthy families and individuals, it is not easy. Investors can become confused if there aren’t enough standards for measuring and reporting ESG (environmental social, governance) products and funds. When it comes to impact investing, gathering the right data requires time, effort, and often a hands-on approach. ESG investors face a problem not with a lack of data, but rather an oversupply in tools and frameworks. Amy Clarke, chief executive officer at Tribe Impact Capital in London, a wealth manager, says that there are a lot of standards and different levels. Amy Clarke, chief impact officer at Tribe Impact Capital, a wealth manager, says that there are a variety of standards and different levels of disclosure in the market. Related Articles Black Swan – Inflation is Transitory for TVC:DXY by DarkPoolTrading September 12, 2021 How to Use the Bitcoin Dominance Chart to Maximize Profits for CRYPTOCAP:BTC.D by Michael_Wang_Official 2 weeks ago To add to investors’ confusion, different providers often come up with different scores for the same company. Research Affiliates, a California-based investment manager, found last year that two rating agencies had different assessments of Wells Fargo’s ESG performance. One gave the bank a better result than the other. “Buyer beware,” warns Liesel Pritzker Simmons who, along with her husband Ian Simmons, runs the US-based Blue Haven Initiative which is an impact investing-focused family business. “With some ratings you get an A+ just for putting up a climate report. But with others you actually need to produce a great climate report.” Liesel Pritzker-Simmons says that no measurement methodology is suitable in every impact investment. (c) Robyn Zweimey
Darshita Gillies is the founder and chief executive officer of Maanch, which is a digital impact measurement platform that uses the UN Sustainable Development Goals. She also identified a deeper problem. She says that there is no standard definition for what an ESG product is before you can even begin to navigate the ESG landscape as a private wealth or family-office perspective. Investors face another challenge: there are dozens of standard-setting entities that have emerged in recent years with different acronyms and measurement methodologies — a phenomenon known as ESG’s alphabet soup. The EU has established rules to define what can be considered sustainable investment funds. This is to ensure that asset managers who want to market a fund to be sustainable are clear about the disclosure requirements. Recommendations: There are more standards developments on the horizon. One of the most important developments could be the International Financial Reporting Standards Foundation’s launch next month of the International Sustainability Standards Board. This board will establish standardised ESG reporting metrics. Standardised measurement tools and tick-box approaches might not always provide the information that wealthy families and individuals need to make informed investment decisions. There is a desire for an easy-to use framework, says Diane SeymourWilliams (London-based Acorn Capital Advisers). “But what is really important? What is behind the ticking box and the resources that were deployed by asset and wealth management to understand what’s going on inside a company?” How investors invest depends on whether they are investing in public equities or funds, or direct investments in private assets through venture capital and equity deals. Naina Batra is chief executive of AVPN. AVPN is an Asian network of philanthropists, social investors and family offices that manage a lot their direct investing portfolio. Batra says that they often outsource public market investments to asset managers and private banks. In some cases, however, family offices with sufficient resources can track the impact of public market investments in-house. She cites Singapore’s Tsao Family Office as an example. It focuses on responsible investments through fixed income and public equities investments and has its own measurement capabilities. Pritzker Simmons says that it is crucial to choose the right manager for those who outsource measurement and impact management. She says that in our public-equity portfolio we have split between active and passive management. “Our active managers were chosen for their sustainability perspective.” These professionals can push for improvements in sustainability performance at companies in the portfolio, she states. She says that they work with management teams to improve their performance, from good to great to moderate. “We trust those managers.” This is the approach taken US-based Veris Wealth Partners which specializes in impact and sustainable investment. Stephanie Cohn Rupp is the chief executive of Veris. “We select the best-in-class managers across all asset classes. So a lot of what we do our due diligence on is how the manager does diligence around S, G and E metrics.” Many prefer to invest in impact investing through private holdings, as stock markets offer less opportunity for individuals and families to influence the performance of their investments. Private equity and venture capital investments allow investors to see the impact of their money directly, unlike listed equities. This takes effort. Clarke, Tribe Impact Capital, says that it takes a lot of effort to find the right information to make the right judgements about whether the business will deliver the kind of change we collectively desire. Social impact projects can be complex and hard to compare. This means that venture capital investments or private equity with a focus on social impact are not able to be assessed using ESG rating systems, or frameworks such as the Sustainability Accounting Standards Board or Task Force on Climate-related financial disclosures. Cohn Rupp says that the private side is about how the manager evaluates impact. The firm provides impact reports to clients to show how their money is affecting the world, rather than just presenting raw data. She says that clients should not be shown their ESG scores because they are meaningless and don’t tell the whole story. Acorn’s Seymour Williams says that impact investment requires a certain amount of pragmatics. “A framework doesn’t necessarily address all the circumstances of an investment.” Paino, a Boston-based investor, believes that precise metrics are becoming more important for impact investors. She says that while it was acceptable to talk broadly about ESG impact five or ten years ago, it is now more specific. Paino is a partner at Desert Bloom Food Ventures, which invests in and supports sustainable food companies. Hungry Harvest is one of Desert Bloom’s portfolio businesses. It reduces food waste by recovering fresh produce and selling it. Hungry Harvest tracks the amount of produce that has been recovered and says that these metrics are crucial to understanding a company’s positive impact. Hungry Harvest reduces food waste by recovering and selling fresh fruit. Investors or their advisers need to engage directly with the companies they are investing in. Pritzker Simmons says, “We usually work with the management teams, regardless of whether it’s a fund or company, to determine those metrics should be.” Because of the complexity of social problems and variations in local market conditions, the data resulting from impact investments are difficult to compare. Blue Haven has learned this through trial and error. Pritzker Simmons says, “When we tried to combine everything into one pretty dashboard it didn’t work and it didn’t tell us any useful information.” It doesn’t make sense to compare a Kenyan pay-as you-go solar company with an online platform for California early childhood development. They’re really different and doing different things in the world.” Alphabet soup: a guide to ESG reporting bodies The Global Reporting Initiative (GRI) launched its sustainability-focused reporting guidance in 1997 (its Global Sustainability Standards Board sets standards for sustainability reporting). Later, organisations such as the Global Impact Investing Network and B Lab developed impact assessment methods. Some organizations provide industry-specific guidance for reporting. In 2018, the Sustainability Accounting Standards Board launched a set standards that covered financially material issues for companies across 77 industries. Others focus on a single issue for reporting guidance, such as the Task Force on Climate Related Financial Disclosures (TCFD), the most prominent framework for corporate climate change disclosure. Collaboration has been achieved to standardize and streamline ESG reporting. This collaboration could make it easier for investors, companies and their advisors. B Lab and GIIN, for instance, aligned their impact assessment tool sets in April. This allowed investors to use B Lab’s tool, the B Impact Assessment and the GIIN’s Impact Reporting and Investment Standards together (IRIS+). The Value Reporting Foundation was formed when the SASB and International Integrated Reporting Councils (IIRC), merged in June. However, there are efforts to improve the standardisation and rigour of the measurement of impact investments. TPG Capital’s The Rise Fund was co-founded by Bono, an Irish rock star, as well as Jeff Skoll (the first president of eBay), who developed the Impact Multiple of Money process. Y Analytics was then spun off. This process involves screening out companies that have low potential for impact, examining a company’s social or environment goals and determining if they are measurable or achievable, and conducting research that assigns a dollar value to the intended social and environmental impact. The Impact Management Project (IMP), a global forum for consensus-building, has identified five dimensions investors can use to assess the social and environmental performance assets in their portfolios. The first three dimensions — “What”, “Who” and “How Much” — allow investors to build a profile about the companies in which they invest. They can ask questions about the gap or shortfall that an enterprise is trying to fill, who is benefiting, how many people are being helped, and what level of change they are experiencing. Investors can use the fourth and fifth dimensions, “Contribution” or “Risk”, to determine if their investments are generating positive change that would not otherwise have occurred. They can also highlight the potential consequences for society and the environment that could be caused by those risks. The UN Sustainable Development Goals can be used by the IMP to gain insight into how investments portfolios contribute to the greater good of people and the planet. The IMP is not the only one who sees the SDGs as a tool for assessing the impact of sustainable investments. Clarke says that the SDG framework has two things that are unique: you have the targets and the key performance indicators that support them. “Those are very transferable for an investment manager,” Clarke says. However, she argues that even though the metrics will improve, investors who want to make a difference with their money should continue asking tough questions. She says that impact investing is somewhat like investigative journalism. You have to peel back layers to get to the heart of the story and discover what happened. “So we tell our clients, ‘Don’t be afraid to answer those questions.'” This article is part FT Wealth, which provides in-depth coverage on philanthropy and entrepreneurs as well as alternative investment and impact investing.
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