Asset & Wealth Management Revolution: Embracing Exponential Change’ PWC
Asset managers wield significant influence over the global economy as they manage trillions of dollars in assets, giving them significant leverage and influence over the companies they invest in. Traditionally, asset managers have prioritized financial returns as their primary objective, with the aim of generating profits for their clients. In recent years however, a noticeable shift has taken place in the investment landscape, driven by the growing recognition that ESG considerations are crucial for long-term value creation and risk mitigation.
A significant reason for this shift can be attributed to the growing influence being exerted by large asset owners including pension funds, endowments, sovereign wealth funds, and insurance companies who act on behalf of underlying beneficiaries. Asset managers are being increasingly challenging to go beyond financial metrics and consider the broader impact of their investment to ensure long term value creation for their beneficiaries. As sustainable investing gains momentum worldwide, global asset managers are integrating ESG considerations into their investment strategies and exercising their voting rights responsibly to shape corporate behavior and drive positive change.
These asset managers in turn, rely heavily on Sustainability reports as a key tool to evaluate the ESG risks and opportunities of a company. These reports provide valuable insights into a company’s management of environmental impacts, social issues, governance practices, and long-term sustainability strategies which are invaluable for asset managers in their decision making process. This article explores the key elements that leading asset managers consider when assessing sustainability reports, highlighting their expectations and guiding companies towards effective and impactful reporting.
Alignment with Global Reporting Standards
Asset managers prioritize sustainability reports that align with recognized global reporting frameworks, such as the Global Reporting Initiative (GRI) Standards, Sustainability Accounting Standards Board (SASB) guidelines, the Task Force on Climate-related Financial Disclosures (TCFD) and the International Integrated Reporting Council (IIRC) framework. Adhering to these standards ensures consistency, comparability, and transparency, enabling investors to make informed decisions.
Robust Materiality Assessments
Asset managers expect sustainability reports to identify and prioritize the most material ESG issues relevant to the company and its stakeholders through materiality assessments. They look for clear explanations of the process used to determine materiality, including evidencing robust stakeholder engagement and identifying industry specific ESG issues. Whether it’s water management for a beverage company or supply chain labour practices for a retailer, aligning materiality assessments with sector-specific challenges demonstrates an understanding of the unique risks and opportunities within the industry. Reports focussed on addressing these material issues and providing data-driven insights into the company’s performance and progress are highly valued by asset managers.
Quantitative and Qualitative KPIs
Asset manager value sustainability reports that include both quantitative and qualitative metrics and data to provide a comprehensive view of the company’s sustainability priorities and performance. They appreciate reports that present key performance indicators (KPIs) related to ESG metrics in a clear and measurable manner. While quantitative data such as emissions reduction targets and energy consumption figures are definitely required, asset managers also appreciate narratives, case studies, and contextual information that help interpret the data and provide insights into the company’s sustainability strategy and impact.
Stakeholder Engagement
Asset managers recognize the importance of stakeholder engagement in shaping sustainability strategies. Reports that demonstrate meaningful stakeholder engagement throughout the reporting process are highly regarded. They value reports that reflect a diverse range of stakeholder perspectives, including employees, customers, suppliers, local communities and NGOs .They expect companies to clearly articulate their stakeholder engagement methods, highlight key findings, and showcase how stakeholder input has influenced their sustainability strategy and decision making.
Integration into Business Strategy
Asset managers seek sustainability reports that demonstrate the integration of ESG considerations into the company’s overall business strategy. They expect reports to articulate how sustainability objectives align with the company’s purpose, vision, and long-term value creation and how their ESG performance supports sustainable growth. The reports should highlight how ESG factors are considered in decision-making processes, risk management, innovation, and resource allocation.
Transparency and Assurance
Asset managers expect transparency and rigor in sustainability reporting. They look for comprehensive and well-structured reports that provide clear disclosure of data sources, methodologies, and assumptions. Independent third-party assurance, such as external audits or verification, further enhances the credibility and reliability of the reported information.
Innovation and Future Focus
Top asset managers are interested in companies that demonstrate forward-looking thinking and innovation in sustainability reporting. Reports should provide insights into the company’s continuous improvement efforts, highlighting milestones achieved, lessons learned, and plans for the future. Asset managers appreciate reports that address emerging ESG trends ,demonstrate resilience in the face of ESG risks and seize sustainable business opportunity to ensure long term success.
In conclusion, understanding the expectations of top global asset managers vis-à-vis sustainability reporting is paramount for companies seeking to attract responsible investments and build long-term value. Effectively using these seven requirements mentioned above, companies can build trust, attract responsible investments, and tap into the significant opportunities presented by the trillion-dollar ESG assets under management. By embracing sustainability reporting as a strategic tool, companies can position themselves as leaders in sustainable practices and contribute to a more environmentally conscious and socially responsible global economy.
