Disclosures by eight of the world’s largest asset owners on how they approach sustainability are “not matched” by disclosures of how they actually implement it in investments and key decisions like manager selection, according to a new report by the World Bank, which tests its new asset owner disclosure framework against pension giant’s such as Japan’s GPIF, Norges Bank Investment Management, CalPERS in the US, and the Canada Pension Plan Investment Board.
Sustainable Investment: Best Practice Disclosure Checklist for Pension Funds offers best practice guidance on disclosures for asset owners across developed and emerging markets in a bid to provide clarity on what sustainability information is most useful to stakeholders, such as governments, asset managers, companies and civil society.
Developed with consultant Chronos Sustainability, the checklist is described by the World Bank as a “universal disclosure blueprint”.
It builds on and aligns with the most common disclosure frameworks – such as the Principles for Responsible Investment’s (PRI) reporting framework and the TCFD’s recommendations – and is designed to “help asset owners clarify their core purpose and mission, their aims and commitments to sustainability, and to set out how these translate into strategic action and targets, and the organisation's resulting performance”.
Ahead of its release, the new framework was tested for “practical relevance” against eight of the world’s largest pension funds, deemed to be ahead of the curve in terms of sustainability.
That study found that while asset owners do “a good job” of describing their “overarching approaches to sustainable investment” this does not translate into details “on how they actually incorporate or embed these practices in their investment portfolios”, including “the manner in which they mandate their external managers to follow such practice” and how they apply these “high-level commitments” to specific issues such as climate change.
The report also said that it was “striking” that none of the asset owners assessed discloses how sustainability is incorporated into their “performance management, professional development or reward processes”.
“Limited information” was also found to be provided on how investment managers are “rewarded for their sustainability related performance” or “how sustainability-related information is incorporated into manager selection, reporting and review processes”.
The World Bank’s checklist is broken down into five “key elements”
About the Organisation: Core information about the organisation, including size, investments, objectives and mandate.
Governance and Strategy: Information about the organisation’s investment beliefs, strategy, policies, objectives and targets, and governance.
Sustainable Investment by Asset Class: Information about the organisation’s approach to investment decision-making and active ownership in its major asset classes.
Delegated Investment: Information about how the organisation outsources investment management.
Climate Change: Information about the organisation’s approach to climate change in its investment process.
The document stresses that the checklist does not offer a view on the ‘right’ approach to sustainable investment but “on the disclosures that should be provided about the asset owner’s approach to sustainable investment”.
It is hoped that the blueprint will also help address the “often inconsistent and inadequate” disclosure of sustainability issues in emerging markets.
"While the general case for asset owner disclosure is clear, it is not clear what disclosures asset owners should provide or what information would be most useful to their stakeholders, such as governments, asset managers, companies and civil society”, said Fiona Stewart, Lead Financial Sector Specialist at the Word Bank.
"What we do know is that when the leading asset owners in emerging markets strengthen their commitments to sustainable investment, they can lead by example and have a catalytic effect on domestic capital markets and the investment system as a whole.”