Asset owners adapt to new sustainability reporting rules | ESG

Asset owners in Asia-Pacific have welcomed the new sustainability reporting rules, but are asking for patience as they understand the practical issues.

The IFRS Sustainability Disclosure Standard, which comes into force from January this year, will create a global baseline for investor-focused sustainability reporting on which local authorities can build.

Mark Wassen, head of KPMG’s corporate and sustainability reporting team, said: “These provide a clear idea of ​​what companies need to report to meet the needs of the global capital markets. “and provide investors with globally comparable information.”

mark wassen
KPMG

The International Sustainability Standards Board (ISSB), which created a reporting methodology based on a framework devised by the now-disbanded Task Force on Climate-related Financial Disclosures, is working with the Global Reporting Initiative (GRI) to The new core standards are complementary to and compatible with the existing GRI standards.

The purpose of the GRI is to meet the information needs of a broader range of stakeholders.

The standards took effect on January 1, 2024, but each jurisdiction will decide whether and when to adopt them.

We expect the implementation process to be slower in Asia-Pacific as large asset owners are already carefully considering their obligations in the region.

Value chain emissions

Until recently, companies and investors have focused on emissions from their operations that fall under the Scope 1 and Scope 2 framework of the Greenhouse Gas (GHG) Protocol.

Companies now also need to consider GHG emissions along their value chain and product portfolio, which is covered by Scope 3 of the Protocol.

Anne Marie
NZ super

Anne-Marie O’Connor, head of sustainable investing at New Zealand Super, said: asian investors Scope 3 reporting is important for two reasons.

First, emissions categories can represent the most significant impact a company or sector has on climate change. Relevant sectors include automakers, oil and gas companies, and finance.

Second, if the entire company is committed to reducing Scope 3 emissions, for example in business travel and supply chains, this can trigger large-scale changes across business and society.

“However, Scope 3 can be difficult to measure. It is best for companies to conduct a materiality assessment and try to measure what is most important,” O’Connor said.

Meanwhile, “guidance on how to account for scope 3 data limitations is improving, and this is important for improving reporting.”

New Zealand’s climate disclosure rules require Scope 3 emissions reporting.

Regarding the fund itself, Mr O’Connor acknowledged that most of NZ Super’s net emissions fall into this category and are emissions from its investments or funding.

So far, the company’s carbon footprint targets address Scope 1 and 2 more directly.

“We are indirectly addressing Scope 3 in the fossil fuel sector by setting targets on fossil fuel reserves and potential Scope 3 emissions.”

The transition of the fund’s listed stocks to the MSCI Paris Adjusted Index addresses Scope 1, 2, and 3 emissions.

In 2022, the Fund transitioned approximately 40% of its total investment portfolio to MSCI benchmarks, including the Fund’s passive reference portfolio benchmark and corresponding global equity holdings of $25 billion.

Investor perception

Joey Alcock, Head of Responsible Investment at Frontier Advisors, said: “It is difficult to suggest that all super funds are confident about how corporate environmental reporting tangibly supports responsible investment efforts. It’s too early,” he said. asian investors.

joey alcock
frontier advisor

“However, their awareness of the impending mandatory disclosure regime, including for Scope 3 emissions, is now quite high and there is a general view that this is a positive development. That said, there is a general view that this is a positive development. Merely doing so is not necessarily constructive; the quality and usefulness of that data is important.”

Mr Alcock said the fund needed time to determine how effectively it could use the added data to meet its ESG and stewardship goals.

Michael Wilsch, chief investment officer at Melbourne-based Vision Super, agreed that the sustainability reporting standards were a good initiative and would help asset owners in the long term.

michael wirsch
vision super

“But I think the government should be more pragmatic.” [reporting] This is because these scenarios are subject to wide interpretation. And the government will need to be patient until the methodology matures.

“For asset owners, the challenge is that most of our portfolio holdings are embedded in other countries that are not subject to Australian regulation.”

On the other hand, some believe that it will take time for the new system to penetrate small and medium-sized family businesses in Asia.

Singapore-based family office investor Chong Win Kiat believes that while large listed companies talk about sustainability, there remains a gap between words and actions.

He feels that local governments also remain cautious about introducing measures that could deter new investors.

“To effectively promote sustainability, we need pressure from a variety of sources, including the media, public education efforts, and social pressure from young consumers,” Chong said.

“This multifaceted approach is essential to driving meaningful change towards sustainability practices.”