The majority of asset managers agree that it should be mandatory for companies to report both their direct greenhouse gas emissions and those related to electricity use — known as Scope 1 and Scope 2 emissions.
These responses were to a public consultations for the two draft climate and sustainability reporting standards that were introduced by the International Sustainability Board (ISSB) over the summer.
The aim of these standards is to improve transparency for investors around about which companies, and by implication, which pension and investment funds, are addressing issues of sustainability.
In its analysis of the responses to these consultations Morningstar said there was “broad agreement” among asset managers on the need for globally consistent disclosures on climate and sustainability standards. However it pointed out that this may not be easy to achieve, with analysis of individual responses showing marked differences, particularly between UK, European and US asset managers.
Morningstar’s analysis found that six of the 20 managers surveyed agreed with the ISSB’s focus on enterprise value — including Capital Group, Dimensional, Legal & General, Wellington, UBS, and Vanguard. This is seen by some as being aligned with a “single materiality” approach, which is focused on the effect of climate change and other sustainability risks on a company’s financial performance.
However eight others —mostly based in Europe and including Allianz, Amundi, BNP Paribas, DWS, and Schroders – have encouraged the ISSB to consider a double materiality approach and incorporate companies’ impacts on the environment and wider society, in line with the European Commission’s proposals.
Five US-based managers – BlackRock, Invesco, Northern Trust, State Street, and T. Rowe Price – advise that a more flexible approach on materiality is needed, accommodating local regulatory practices.
Eight of the 20 respondents – including BNP Paribas, Capital Group, Legal & General, and Wellington – agree with the ISSB that Scope 3 emissions disclosures (other indirect greenhouse gas emissions) should also be mandatory. Other asset managers only want mandatory disclosure of Scope 1 and Scope 2 emissions.
In its research on this issue, Morningstar’s director of investment stewardship research, Lindsey Stewart said: “We strongly believe that as asset owners and asset managers invest globally, they need some international convergence to be able to report meaningful aggregated information to end-users.
“On the whole, asset managers firmly agree with this, but their responses in key areas addressed by the draft standards—particularly materiality, greenhouse gas emissions disclosures, and international alignment—suggest that this goal will be difficult to achieve without major changes in approach by either the ISSB or other standard-setters globally.”