New tool builds on the IIGCC Net Zero Stewardship Toolkit to improve stewardship practices and accelerate the decarbonization of investors’ portfolios.
The Institutional Investors Group on Climate Change‘s (IIGCC) newly released The questionnaire aims to help asset owners prevent climate-related risks impacting their portfolios by optimizing the selection and monitoring of asset managers.
A key goal of the questionnaire is to improve information flows between asset owners and their asset managers and investment advisors to ensure that engagement and stewardship activities deliver the actions and results asset owners need to get their portfolios to net zero.
Peter Taylor, Corporate Program Director at the IIGCC, explains ESG that effective climate engagement is investors’ “primary tool” to reduce real-world emissions, achieve their climate goals and protect their investments against associated risks.
With a significant portion of asset owners relying on asset managers to implement climate engagement strategies, Taylor says that alignment between asset owners and managers on climate management, and how this is integrated into investment decisions, is “critical to achieving the net zero targets”.
Establish consistency and comparability
The questionnaire was created by IIGCC’s Asset Owner Working Group last year, with representatives from ten asset owners including Aegon UK, Guys & St Thomas’s Foundation, Brightwell, Phoenix Group and Nest.
The queueStionnaire has been rated by more than 50 stakeholders, including asset owners, asset managers, investment advisors and regulators to ensure the questionnaire only asks for information that is “useful for decision-making for asset owners and relevant to the sector where possible,” Taylor said.
“Finding the balance between providing useful information to investors and supplementing the reporting requirements of asset managers was important to us. That’s why we made sure we consistently engaged with a wide variety of stakeholders,” he said.
The questionnaire builds on the IIGCC Net Zero Stewardship Toolkit but also aims to tie in with existing work to promote broader consistency, including with the Investment Consultants Sustainability Working Group (ICSWG) Engagement Reporting Guide.
Taylor said that fAs a result of the involvement with the ICSWG, the questionnaire will now be included in their Engagement Reporting Guide, which is “the no [the] reporting burden” for asset managers.
He noted that existing information flows between asset owners and managers on climate engagement lack consistency and granularity.
Taylor said that asset owners currently take a “wide variety” of approaches to monitoring the stewardship performance of asset managers, but “Without a consistent definition of engagement, even this most fundamental question becomes challenging to answer.”
This creates problems in comparability of information between asset managers, making it more difficult for asset owners to understand the effectiveness of engagement activities, he added.
He also underlined the problems arising from the fact that engagement information is activity-oriented, rather than objective or results-oriented, limiting the ability of asset owners to measure its contribution to emissions reduction targets in their portfolio.
Votes on climate resolutions at oil and gas companies have taken place this AGM season suggested that there is one lack of coordination between asset owners and managers. Multiple British asset ownerSincluded members of the IIGCC’s Asset Owners Working Group, voted against the reappointment of the CEOs Shell And BP But did not receive sufficient support from their managers.
Setting standards for stewardship
In addition to improving information flows between asset owners and managers, the questionnaire also aims to optimize the use of resources and ensure the consistency of the goals and approaches of asset owners’ portfolio efforts, establish standards for practice and reporting on stewardship, and promoting consistency among investors, advisors, regulators and other stakeholders.
“Some asset owners are starting to embed more sophisticated approaches and try to focus on objectives and outcomes,” Taylor said. “However, climate reporting practices are still emerging and remain inconsistent, and often do not provide enough detail about the climate for asset owners to adequately identify or assess progress against net-zero commitments and reporting requirements.”
He added that the IIGCC’s goal is for asset managers to become accustomed to answering the same questions from asset owners, which would create “more consistent, standardized” information flows on climate engagement.
“Asset owners need this information from their managers, and will increasingly demand it,” Taylor said. “Standardizing the information and encouraging best practices will lead to greater harmonization in the long term.”
Going forward, the IIGCC said it will work with both asset owners and managers to support the implementation of climate management best practices using this questionnaire, in addition to the Net Zero Stewardship Toolkit and other key guidance.
Furthermore, it will continue to work with regulators to promote “consistency and usability.”” in its stewardship regulations, adding that in the longer term it plans to develop further guidance on climate management best practice and reporting.
The IIGCC’s Asset Owner Working Group will also focus on addressing issues that impact asset owners’ ability to develop and implement best climate management practices, including looking at tools such as expressions of their desire to vote.