LSEG Streamlines Flow of Climate Transition Data to Investors

Stock exchange group will be supported by TPI methodology, as asset owner-led initiative expands scope of assessments.

To boost the flow of information on issuers’ transition plans to investors, the London Stock Exchange Group (LSEG) has introduced new climate reporting guidance, based on the United Nations Sustainable Stock Exchange’s (SSE) Model Guidance on Climate Disclosure. The guidance will support UK-listed companies that are integrating climate risks and opportunities into their Task Force on Climate-related Financial Disclosures-aligned (TCFD) reporting and in their broader decision-making as they transition to net zero.

LSEG is also working with the UN SSE to produce educational resources to help London-listed companies implement TCFD reporting recommendations.

The stock exchange is a founding member of the Net Zero Financial Services Providers Alliance (NZFSPA), committing to aligning its financial market infrastructures with a 1.5°C trajectory. It was also the first stock exchange group to sign up to the UN’s Race to Zero, setting 2030 and 2050 science-based decarbonisation targets.

As part of its new guidance, LSEG has implemented the Transition Pathway Initiative’s (TPI) Management Quality Score (MQS) methodology to produce Climate Governance Scores for over 400 Main Market listed companies. This will help companies to understand the key climate metrics that investors are focused on as well as to measure their performance against industry peers.

When assessing a company, the MQS methodology focuses on: climate policy; executive remuneration KPIs; the quality of strategic climate-related risk and emissions reporting; and whether the company has set science-based targets.

“It is essential that the financial market ecosystem supports and stimulates the action necessary across the economy to meet the [climate] challenge. Our new Climate Transition Offering will help issuers understand how investors view their performance on the transition and facilitate change by providing an action-orientated climate reporting framework aligned with global standards,” said Julia Hoggett, CEO of the London Stock Exchange.

From 400 to 10,000

Stock exchanges and investor-led initiatives play a vital part in ensuring corporates are disclosing relevant climate-related information for investors transitioning their portfolio assets to net-zero greenhouse gas (GHG) emissions, according to Adam Matthews, Chief Responsible Investment Officer of the Church of England Pensions Board and Chair of the asset owner-led TPI. The initiative is now backed by investors with a combined US$40 trillion in assets under management or advisement.

“As investors, we need to understand the risks and opportunities posed by the transition for investee companies,” said Matthews. “Once we can identify which companies are well-placed in the transition and which are not through publicly available information, then we can work to support and encourage action as is appropriate.” He was speaking at the ‘Investor Action on Climate’ series, hosted yesterday by the LSEG and UN-convened Principles for Responsible Investment (PRI).

Around 400 companies are annually assessed by TPI and account for around 80% of global emissions, but “there’s demand from investors to go much deeper into the analysis of a wider scope of companies”, said Matthews.

In response, TPI has announced plans to launch the Global Climate Transition Centre, which aims to increase the initiative’s assessment coverage to 10,000 companies spanning a broader range of asset classes, such as fixed income. These independent climate assessments of issuers will be free and publicly available to all investors.

With the centre set to launch early 2022, LSEG will be providing data, expertise and funding over the next five years to help scale out TPI’s assessment capabilities.

“It is going to give us the capacity to ensure that depth and detail investors really want when assessing their portfolio transition risks,” Matthews said. “It is hard for investors to support and engage with companies if they are setting targets and have climate-related ambitions, but we don’t have access to that work. Progress, or a lack of progress, needs to be publicly disclosed.”

Also speaking at the PRI and LSEG event, US Securities and Exchange Commission (SEC) Commissioner Allison Herren Lee said that enhanced corporate climate disclosure will both inform markets and “the wider spectrum of climate policymaking”.

“Better data can accomplish a great deal […] it’s not just investors who will benefit from the information. All policymaking should flow from reliable data as well,” she said.

The SEC is expected to publish its finalised proposal for a mandatory climate-related financial disclosure framework this month.

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