The Disruption House recently partnered with PAM Insight, the leading provider of specialist data for the wealth management sector, to launch the PAM Insight Sustainability Indices, analysing the publicly available sustainability disclosures of 61 asset managers across their sustainability reports, financial statements and web-based information.
The indices offer a robust framework for assessing and comparing the sustainability performance of firms relative to their peers, across all of the core professional disciplines in advising HNW, UHNW and family office clients.
How does the analysis work? The public information provided by these companies are scored against 70+ sustainability metrics across the 3 pillars of E, S & G which are themselves derived and condensed from extensive market research into multiple industry standards including GHGP, TCFD, SASB, GRI and the SDG reference disclosures for corporations. The scores are then benchmarked and according to investor type and assets under management (AUM).
Why focus on public information? 1) Investors and asset owners want the information that forms their decisions, and they want it in a usable and concise format. If the data isn’t there, it doesn’t exist for the consumer. A company that veils its sustainability performance or targets is losing out to peers that don’t, regardless of their motive. 2) If the information is clear and measurable it makes exaggeration and flattery of achievements harder to justify, helping to reduce confusion and potential greenwashing.
The analysis therefore efficiently filters material and measurable disclosures from marketing content, leaving the user with a clear understanding of the company’s values, goals, strategy and compliance.
Initial observations: some initial insights from the 62 firms in the launch Index highlight a degree of confusion between entity and product disclosures and how or where sustainable metrics are attributed, multiple simple disclosures that were frequently missing such as gender pay gap and training, and some instances of excellent transparency across the pillars but especially under governance.
Please see below for more detailed analysis and we invite you to get in touch with questions and requests.
1 Fragmented and confusing disclosures.
TDH analysts search for 71 core datapoints across the 3 pillars of ESG. None are controversial or niche. However, only 18% of the index members provided information in dedicated or integrated sustainability reports.
The majority of the data was fragmented and gathered from unbundling multiple different sources of material spread across annual reports, marketing brochures, papers, websites and factsheets.
Finding the metrics in a consolidated publication or webpage is unusual.
2 Entity and product disclosures bundled.
The index members dedicate more resources to describing their sustainable investment selection process, methodology and screening processes in the portfolios.
Providing sustainability disclosures at entity level seems to be a secondary consideration, and often bundled into the product, potentially confusing investors seeking information about the sustainable practises of the asset manager, rather than the funds.
3 Score differences are tight within the Majors and Specialist Groups
When we divide the index into broad categories of Majors and Specialists there is a clear delineation between scores. Although the average scores within the groups are only a few points in difference, the gap between the two categories is substantial, with Majors scores averaging 56% and Specialist scores averaging 34% – some 22% points lower.
Perhaps not surprisingly the score differentials are smallest under the Governance pillar, at just 45%, followed by Environmental disclosures some 55% higher, but the Social score for the majors is almost double that of the Specialists, suggesting that core Social topics are not being effectively addressed within this group of constituents.
It also highlights the opportunity to close the gap is not necessarily the most expensive or difficult to achieve. Much of the difference relates to failure to provide simple disclosures such as gender pay gaps, training programmes eg skills or health and safety, lost time incident rates or employee engagement scores.
4 Beyond emissions
Encouragingly not only are constituents of the index heavily focused on providing high quality emissions data against all scopes, but over 75% have also provided information about their biodiversity and nature-related impact.
In the built environment 34% are housed in BREEAM or LEED certified offices, slightly above the London office average of 30%
5 Waste and Resource consumption
Although disclosure against energy consumption is high with 53% providing energy usage data, when it comes to managing other utilities such as water and waste, the disclosures drop rapidly with just 11% of respondents disclosing information about water usage, waste recycled or waste disposal practices.
6 Governance scores predictably high
Across the board Governance scores are high, with the smallest gap between disclosures by the Majors group and the Specialists (56% vs 39%).
90% of constituents have statements in place to combat modern slavery as well as codes of ethics/conduct policies. There is however a scarcity across the board of conflict disclosures such as fines, human rights violations, bribery, corruption or fraud, reporting either incidents or confirming that none have occurred.
The highest score of all is reserved for data protection and privacy, nearing 100% compliance.
With regard to board composition 77% disclose gender diversity, but just 35% provide information about ethnicity.
7 Sustainability responsibility
To demonstrate the extent to which sustainability has penetrated this sector, 85% of constituents have an established ESG committee either at board or senior management level, and 66% operate some form of remuneration scheme linked to sustainable goals and targets.
Based on this observation and the firepower committed to sustainable practise, it is even more surprising that just 18% have published a dedicated sustainability report.
Conclusion
There is a strong will to provide high quality sustainability disclosure, and given the resources available across the board it will be no surprise to conduct this review again next year and find the scores significantly improved as firms:
- Target the right resources to improve disclosures in specific pillars like Social
- Provide additional clarity by publishing dedicated, functional and educational reports that can better support their investors (and investees)
- Avoid confusion between entity and product disclosures
- Build on strategic sustainability that can enhance stakeholder awareness, and boost confidence that entity behaviour is aligned with its own high portfolio standards.
