The vital role of reporting within asset management teams was one of many topics explored in Sennen’s webinar on ‘ESG Hype vs Reality’.
The expert panel shared their insights on overcoming the complexity of reporting and how, when done well, it underpins strategic decision-making and is a vital engagement tool in connecting investors with their portfolios.
Play the clip below to watch the full discussion between Gaby Amiel from Sennen, Tomas Freyman from Grant Thornton UK, David Thomas from GRESB, Parul Gupta from Arabesque and Lily Crompton from Foresight Group.
David recognises that for asset management investment teams, evaluating an infrastructure portfolio, company and ESG practices can be challenging to navigate. Asset operators and portfolio companies may not be completely clear on what their ESG management approach consists of.
He goes on to consider the diversity of infrastructure businesses, including sectors and subsectors alongside geographical differences. That adds a layer of complexity to reporting and how it is analyzed. David believes that identifying how to evaluate the strength and quality of ESG practices and performance is a starting point, requiring context and boundaries. A materiality process can be really helpful here whereby an organisation defines and scores the social and environmental topics that matter most to the business and to stakeholders.
He concludes by saying that reporting must be useful and it’s crucial to think about how you’re going to utilize the results from the reporting process. For instance, structured post-reporting analysis is a vital step when you’re providing a connection between investors and their funds and assets. You’re giving investors an opportunity to gain a real understanding of the performance of the investments, with the hope that over time they can develop that into a road map for improvement.
If you are reporting in a structured way, you can positively address those challenges by informing good practices and measuring progress. Fundamentally what you have is a platform to build long term improvement.
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My take on reporting is that it can be viewed as a key facilitator in the engagement process between investors and their portfolios. You can then extend the ability for more active asset management, support decision making, provide risk mitigation, identify opportunities and achieve general improvement. You can’t improve what you’re not tracking. So reporting really can be a first step in that journey.David Thomas from GRESB
Parul says that the reporting burden on corporates is quite high. She highlights how on average they have to report to more than 20 frameworks and index providers. Proper reporting is driven by an understanding of what the different frameworks are and which are most pertinent to investors, as well as the ease of those frameworks.
I think it’s very important for investors to come together, give feedback and work with the framework owners to come up with something that’s more meaningful for corporates because, if it’s meaningful, they won’t look at it as a burden.Parul Gupta from Arabesque
Lily takes a clear stance by highlighting how we need a structure for our reporting, and frameworks can provide that, both internally and externally. It allows you to plan for performance improvements and gives meaning to the process of collecting the data. If you’re not using the data to move forward, it will be seen as a burden as the benefits are not clear.
I think it’s always very difficult to start reporting anything. There is a process that you go through, where over time you make it more efficient. You learn from the data. You learn how to collect it, you learn whether it can be automated. All of our technological and data management systems are improving. You just need to search online for ESG data management providers and they are everywhere now. There are a lot of tools out there that we can use to improve data analysis.Lily Crompton from Foresight Group
For value or for financial modeling, Tomas believes it always comes down to the data. If you can measure it, you can value it. Ensuring that any ESG strategy is embedded in a value creation strategy for the corporate or for the fund is crucial.
A great example that Tomas gives is that of the energy storage market; a small but fast-growing subsector of infrastructure. Tomas states that they are coming under pressure from limited partners on a range of issues including the sourcing of minerals and how the technology is being deployed. If they can get the correct data and embed it in their value-creation strategy, then that reporting can help in a multitude of ways. It can help them raise funds, help them deploy capital and grow and return to shareholders at the end of the day. That’s the big driver, according to Tomas.
If it becomes too much of a box ticking exercise, it will just fall to the side of the desk. It’s got to be absolutely core to the way you run a fund or a corporate. That’s how it leads to value creation.Tomas Freyman from Grant Thornton