Lack of standardized reporting, data are big ESG challenges for money managers

A lack of standardized reporting frameworks and significant data limitations are among the bigger challenges for money managers attempting to meet stricter ESG guidelines, particularly in carbon emissions, according to a survey by Russell Investments.

A report of Russell's 2022 ESG Manager Survey says that 87% of the 236 global asset manager respondents report carbon emissions in their client reporting, the highest-percentage response. In focusing on climate-related reporting, Russell then asked those managers that report carbon-intensity measure for which asset class(es) is the calculation provided.

Among the survey respondents, 86% said the calculation is provided for listed equities, while 62% and 57%, respectively, said investment-grade corporate bonds and high-yield corporate bonds.

Beyond those three main asset classes, however, respondents said it is hard to find climate data related to additional asset classes. For example, the next-highest responses were only 30% and 29%, respectively, for developed markets sovereign bonds and emerging markets sovereign bonds. The report says there is a lack of data for these asset classes because the markets "involve various segments, such as asset-backed securities, mortgage-backed to commercial mortgaged-backed securities for the securitized, and revenue bonds to general obligation bonds for municipal bonds," the report said.

"The results highlight further improvements are still needed around ESG data," said Yoshie Phillips, head of fixed income ESG investing at Russell Investments, in a Nov. 16 news release announcing the release of the report. "In the corporate bonds space, there are still several challenges such as disclosure practices in privately held companies or applying carbon measures in green bonds. Outside corporate issuers, ESG-related reporting continues to evolve in an unstructured fashion due to the absence of clear industry standards. There are some proposed frameworks to account for sovereign issuers' emissions which is a welcome development."

Also, 56% percent report externally derived ESG scores, and the same number reported internally derived scores; 29% report diversity statistics; 27% report impact metrics with sustainable development goal alignments; 25% report climate transition metrics (outside of carbon emissions); 16% report European Union regulatory metrics; and 13% report impact metrics outside of sustainable development goal metrics. Multiple answers were allowed.

Also, according to the survey, more asset managers are now embracing forward-looking views, with a total of 26% of respondents saying there are signatories to the Net Zero Asset Managers initiatives, up from 10% in last year's survey.

The report can be requested at Russell Investments' website.