New tool builds on IIGCC Net Zero Stewardship Toolkit to enhance stewardship practices and accelerate decarbonisation of investors’ portfolios.
The Institutional Investors Group on Climate Change’s (IIGCC) newly released questionnaire aims to assist asset owners in preventing climate-related risks impacting their portfolios by optimising the selection and monitoring of asset managers.
A key objective of the questionnaire is to improve information flows between asset owners and their asset managers and investment consultants to ensure that engagement and stewardship activity delivers the actions and results that asset owners need to align their portfolios with net zero.
Peter Taylor, Corporate Programme Director at the IIGCC, told ESG Investor that effective engagement on climate is investors’ “primary tool” to reduce real world emissions, meet their climate goals and protect their investments from associated risks.
With a significant portion of asset owners relying on asset managers to implement climate engagement strategies, Taylor said alignment between asset owner and manager on climate stewardship, and how this is integrated into investment decisions, is “critical to achieving net zero targets”.
Capturing consistency and comparability
The questionnaire was created by IIGCC’s Asset Owner Working Group last year, with representatives from ten asset owners including Aegon UK, Guys & St Thomas’s Foundation, Brightwell, Phoenix Group and Nest.
The questionnaire has been reviewed by more than 50 stakeholders, including asset owners, asset managers, investment consultants and regulators to ensure that the questionnaire only asks information that is “decision-useful for asset owners and aligns with industry where possible”, according to Taylor.
“Striking the balance between providing useful information to investors and adding to asset managers’ reporting requirements was important to us, which is why we made sure to consistently engage with a large variety of stakeholders,” he said.
The questionnaire builds on the IIGCC Net Zero Stewardship Toolkit but also seeks to align with existing work to promote wider consistency, including with the Investment Consultants Sustainability Working Group’s (ICSWG) Engagement Reporting Guide.
Taylor said that following engagement with the ICSWG, the questionnaire is now set to be incorporated into their Engagement Reporting Guide which will “reduce [the] reporting burden” on asset managers.
He noted that existing information flows between asset owners and managers on climate engagement lack consistency and granularity.
Taylor said asset owners currently take a “large variety” of approaches in monitoring asset managers’ stewardship performance, but “without a consistent definition of engagement even this most basic question becomes challenging to answer”.
This creates difficulties in comparability of information between asset managers, which makes it harder for asset owners to understand the effectiveness of engagement activities, he added.
He also underlined problems arising from engagement information being activity-focused, as opposed to objective- or outcome-focused, restricting asset owners’ ability to measure its contribution towards portfolio emission reduction goals.
Votes on climate resolutions at oil and gas firms this AGM season have suggested that there is a lack of alignment between asset owners and managers. Several UK asset owners, including members of the IIGCC’s Asset Owner Working Group, voted against the re-appointment of the CEOs at Shell and BP but did not receive sufficient backing from their managers.
Setting standards for stewardship
In addition to improving information flows between asset owners and managers, the questionnaire also aims to optimise use of resources and ensure consistency of goals and approaches across asset owner portfolio efforts, setting standards for stewardship practice and reporting, and promoting consistency across investors, consultants, regulators and other stakeholders.
“Some asset owners are starting to embed more advanced approaches, and trying to focus on objectives and outcomes,” Taylor said. “However, reporting practices on climate are still emerging and remain inconsistent, often not containing enough detail on climate for asset owners to adequately set or review progress against net zero commitments and reporting requirements.”
He added that the IIGCC’s aim is for asset managers to become accustomed to answering the same questions from asset owners, which would create “more consistent, standardised” information flows on climate engagement.
“Asset owners need this information from their managers, and will increasingly ask for it,” Taylor said. “Standardising the information and encouraging best practices will lead to more harmonisation down the line.”
Going forward, the IIGCC said it will work with both its asset owner and manager members to support implementation of best practice on climate stewardship using this questionnaire alongside the Net Zero Stewardship Toolkit and other key guidance.
Further, it will continue to engage with regulators to drive “consistency and practicality” in regulation on stewardship, adding that in the longer term it intends to develop further guidance on best practice climate stewardship practices and reporting.
The IIGCC’s Asset Owner Working Group will also aim to address issues affecting asset owners’ ability to develop and exercise best practice climate stewardship, including looking at tools like expressions of wish for voting.