BlackRock Inc is advocating a standardised measurement of corporate sustainability and environmental, social and governance (ESG) performance, and an end to the “alphabet soup” of competing standards.
According to a BlackRock report seen by the Financial Times, the world’s biggest asset manager says “investors and other stakeholders need a clearer picture of how companies are managing sustainability today and planning for the future…this could be resolved by aligning and converging to establish a globally recognised sustainability reporting framework and set of standards”.
It’s not like BlackRock is alone in this. The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures said in its recent third annual status report that existing reporting by asset managers on climate risk “is likely not sufficient” and more progress is probably needed.
Proxy Insight, meanwhile, says that as of end-October, the number of shareholder resolutions on ESG issues was at a record 21 supported by a shareholder majority, including big companies like Procter & Gamble and Chevron.
Yet the call for more action and better standards has produced more standards with no consensus among them as yet. According to the third quarter 2020 issue of BlackRock’s global investment stewardship report, the asset manager believes that the “optimal outcome and the one most likely to succeed” is the one proposed by IFRS Foundation.
BlackRock’s backing may be enough to decide the issue in favour of the IFRS Foundation framework. But for asset managers and companies alike, the fact that ESG reporting is an alphabet soup is no excuse for keeping it off their menu. Institutions are demonstrably ready to allocate big chunks of capital to asset classes with far less uniform reporting frameworks, like private equity. So why wait on ESG?
There are certainly enough ESG standards out there to adopt at least one. Foot-dragging on this front is inevitably going to be seen as plain reluctance to adopt ESG and sustainability standards at all. And for asset managers and companies alike, that is going to increasingly be seen as a red flag. As quoted in the Financial Times, David Cumming, chief investment officer for equities at Aviva Investors, is already hinting at “the ultimate sanction of divestment” for companies that fail to develop a climate strategy.
It’s better to get pro-active on this rather than wait for the alphabet soup to settle out into simple four-letter words.
