Investment trust ESG disclosures need to evolve says industry

Disclosures running close to 1,000 words

clock • 3 min read
New ESG disclosures are  difficult to "wade through"
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New ESG disclosures are difficult to "wade through"

Investment trust commentators are questioning the utility of the Association of Investment Companies (AIC) new ESG disclosures given the free-form format, but applaud the strides towards transparency.

Many of the disclosures are running close to 1,000 words if not more. For example, Baillie Gifford and JP Morgan Asset Management both have disclosures between 800-900 for their investment companies, while Fidelity's are running at over 1,000 and Impax Environment Markets is around 1,400 words.

"There is a lot to wade through on the ESG disclosures on the AIC site," said Mick Gilligan, head of managed portfolio services at Killik.

"We have used it where we are carrying out due diligence on trusts as it provides helpful supplementary info… but I think it would be helpful to get more of a bird's eye view of things across sectors."

Sarah Godfrey, director of investment trusts at the Edison Group agreed, saying she used the disclosures to inform her reports, but that it can take some work to "extract the key points".

In some cases she has seen lengthy disclosures taken directly from the annual report or other corporate literature and said something more focused could work better for the AIC disclosures.

AIC publishes member companies' ESG policies in transparency push

"We asked our members for free-form disclosures so that every member could include the information they thought would be most relevant and helpful to investors," said Annabel Brodie-Smith, communications director of the AIC.

She highlighted the diversity of the industry means that one size does not fit all and that the AIC wanted to "give members the freedom to include as much information as they wanted to help inform investors' decisions".  

Patrick Wood Uribe, CEO of Util, a sustainable investment fintech, said: "In theory a free-form approach allows investment companies to appeal to their investors in different ways, which in turn allows those investors to choose what appeals to them most."

However, this also means companies can choose what to share "with little to no moderation", which means they will not be "equally informative, and investors will still struggle to understand and compare companies".

He concluded: "Consistency, better data sets and clearer parameters are needed if ESG reporting actually is going to help investors make more informed sustainable investment decisions."

The evolution of ESG disclosures

While recognising that standardisation of ESG data is challenging, Gilligan said he has asked the AIC if to consider some sort of comparative tool, but acknowledged that "it is probably not that straightforward".

IW Long Reads: Clear as mud? ESG fund info has a long way to go

Jason Holland, managing director at Tilney Smith & Williamson, meanwhile suggested the reporting might be "enhanced by requiring each company to populate a common template that clearly shows some key metrics like number of meetings voted at, proportion votes abstained and for/against management, plus a check list of any exclusions etc".

However, he stressed: "The AIC deserve a thumbs up for introducing this and I am sure it will evolve over time."

Simone Gallo, managing director of Mainstreet Partners, suggested a "scorecard" format. 

"It can be a one pager but highlight an overall ESG rating of the trust, then key elements of the policy which reflect how the ESG integration is considered and what key controversial sectors and behaviours are excluded," he said.

He added that it is vital to show "actual results".

"A positive or negative alignment to United Nations Sustainable Development Goals or a series of key impact metrics like CO2 footprint, water and waste consumption or a measure of the diversity of the underline companies," said Gallo.

Brodie-Smith said the AIC currently has no plans to introduce tools or filters for ESG, but "it is early days".

"The disclosures are a first step in providing investors with readily accessible information about investment companies' ESG policies," she added. "We're interested to hear investors' views on the disclosures so that we can consider how to develop them to be as helpful as possible."

 

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