The investment management industry needs meaningful, consistent and comparable information across all asset classes to make well-informed investment decisions and to be assured of quality of the data that we in turn publish for clients. Accurate disclosure by investee companies of data relating to their management of material risk factors (which may include risks which are social in nature, governance-related, climate-related or pertaining to any other form of environmental risk) helps investors to assess materiality and manage the risks arising from climate change in our investment processes.
We must recognise that the nature of an economy-wide transition to net zero means that investment management firms are on a journey to develop more sustainable business practices and to ensure that all material risks are fully incorporated into their investment processes. In line with regulatory expectations, we are committed to work to improve the reporting of direct (scope 1) and indirect (both scope 2 and 3) emissions across the value chain.
In considering how best to measure the environmental impact of our portfolios, how to disclose this to our clients, and how to market funds which support climate-related objectives we must show the public that the investment management industry can be trusted on climate change. If climate change is a defining issue of this era of investing, then how we meet that challenge will be a crucial test of the industry’s integrity. If we move too fast or fail to deliver on bold promises then the suspicion of “greenwashing” – fairly or not – will undermine what we are all trying to achieve.
This is an extract from the IA Position on Climate Change.
Since its creation in April 2022, the IA has been a member of the Delivery Group of the UK's Transition Plan Taskforce (TPT). The TPT aims to establish best practice for corporate transition plans and develop guidance and templates for robust disclosures, and will publish a recommended disclosure framework later in 2023.
The UK hopes that the output of the TPT will influence international standard setting in establishing robust and science-based criteria for transition plans.
The TPT's work will also be central to the implementation of the UK's Sustainability Disclosure Requirements and the Government intends to consult later in 2023 on how the UK's largest companies should be required to disclose transition plans. The FCA has previously stated that it will consider how the TPT's disclosure framework should inform its rules on TCFD-aligned disclosures.
The IA will support the creation of credible, comparable and decision useful transition plans for the real economy to support investment managers in aligning their portfolios with the net zero transition.
In November, the FCA announced the formation of a group to develop a Code of Conduct for ESG data and ratings providers. The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) operate as the secretariat for this working group and the IA is a member.
The establishment of the working group pre-empted the publication by HM Treasury of a consultation on the future regulatory regime for ESG ratings providers should be brought into the regulatory perimeter. The FCA has expressed support for introducing regulatory oversight of certain ESG data and ratings providers. The Government's consultation sets out proposals for the scope of any such regulatory regime and is expected to report later in the year.Physical risk factors will be an important element of any climate and nature-related disclosure regime. While we seek to prevent climate change and nature loss and damage, it is also essential that investors consider their role in facilitating adaptation and resilience.
The IA will support the need for a coherent regulatory framework of ESG data and rating providers to ensure investor protection, transparency and integrity in the sustainability and responsible investment market. It is important to ensure the particular requirements and limitations around climate-related data, including those relating to physical risk, are considered.
The Green Finance Strategy announced that the Government will establish a decision-making mechanism for the endorsement and incorporation of the output of the International Sustainability Standards Board (ISSB) in the UK. This follows UK support for the ISSB's work in international forums.
The IA has long argued that, in seeking to ensure a robust investment information ecosystem, the UK must also ensure that it remains aligned with overseas markets and support efforts to ensure global coherence of standards through initiatives like the ISSB.
The Government has already made significant progress on its roadmap to introduce disclosures across the whole economy which are aligned with the Task Force on Climate-related Financial Disclosures (TCFD), and the TPT will also align with ISSB and TCFD standards. The Government is also a supporter of the Taskforce on Nature-related Financial Disclosures (TNFD) and has already committed to considering how best the TNFD framework should be incorporated into UK policy.
The IA will promote a coherent and consistent international regulatory environment for corporate climate-related and sustainability disclosures (including through the work of the ISSB and TCFD).
The Government's 2023 Green Finance Strategy identified investor stewardship as crucial to the successful management of risks, opportunities and impacts presented by climate and environmental change. In 2021, the Greening Finance Roadmap highlighted the importance of investor stewardship in green finance and set out the Government’s expectations.
Through the IA’s annual Shareholder Priorities, the IA set out member expectations on TCFD-aligned reporting, including particular aspects which investment managers consider companies need to focus on. The IA's Institutional Voting Information Service (IVIS) has an established record of highlighting companies that do not make disclosures against all four pillars of TCFD and monitors whether companies have made a statement on the consideration of relevant climate and transition risks when preparing their report and accounts.
In November 2022, the IA published a report, ‘Improving Fixed Income Stewardship'. HM Treasury's Asset Management Taskforce recommended that an IA working group produce guidance on how stewardship in fixed income could be improved. The report aimed to provide guidance on the importance to investment managers, their clients, regulators and companies of stewardship in corporate debt, and set out investors’ expectations for issuers of corporate debt, covering transparency on the use of proceeds and improving ESG disclosures.
In May 2023, in response to another Asset Management Taskforce recommendation, the IA published guidance providing institutional investors with an overview of the key steps required to successfully file a shareholder resolution at UK company AGMs. Such resolutions can be an effective tool for escalating concerns where standard engagement has not achieved change.
The IA will work with members to facilitate the highest standards of stewardship to provide the necessary support and challenge, including to investee companies in their transition to net zero business models. We will also continue to work to consider how best to do stewardship in fixed income.
