As a responsible investor, reliable information about the ESG performance of companies is key to assess their level of sustainability. Fortunately 95% of the 250 largest companies in the world report on ESG (KPMG 2011). However, only 13% of the largest pension funds reported on ESG in 2010 (UNCTAD, 2010). This begs the question how can the beneficiaries of pension schemes and other stakeholders assess the ESG impact of the investments? As asset managers and pension funds who require others to abide by ESG standards, we should ask ourselves, do we want to lead on ESG reporting ourselves as well? If so, what would make an ESG report cutting edge?
1. Materiality matrix
We believe there are several aspects to making a responsible investment report valuable for your stakeholders. First of all, start off with a materiality matrix. This means determining which topics are relevant to your stakeholders and clients, and which ones are relevant to your business. This will bring focus to your report as the outcome will be which topics are most material. We decided to have the responsible investment report audited by an external party which helped in determining materiality.
2. No false pretense
Second of all, do not shy away from addressing dilemmas. Responsible investment reports can be great marketing material. But in a world that is becoming increasingly transparent, we should not create false pretense. Due to many reasons such as legislation or payback periods, responsible investing may conflict with stakeholders and your fiduciary duty. Investors alone cannot solve all the world’s problems and we should be able to communicate this message.
3. Provide context
Third of all, be transparent about your goals. An increasing number of responsible investment reports provide data on goals accomplished. However, all too often these do not provide context. As a simple example, do not say “we voted 2000 shareholder meetings” but provide context what percentage of total shareholders’ meetings you have voted at.
4. Highlight results
Fourth of all, highlight the effect your investment choices have on the world. Reporting on ESG performance is much more complicated than reporting on annual returns. There are not yet standard measurements but this will clearly be an area of future interest in answering the question: what is the result of all your RI activities?
5. Internal sustainability
Finally, report on your internal sustainability, e.g. how green is your office or employee health programs.
By following these recommendations, we believe an RI report can be as leading as the ones we expect from the companies we invest in.