Famed US fund manager T Rowe Price has advocated for consistent environmental, social and governance (ESG) regulatory standards across all jurisdictions.
Rob Sharps, group chief investment officer, says in the T Rowe Price 2020 ‘Sustainable investing’ report released last week that the recent hyperbolic escalation of ESG has “added to confusion in the industry on a number of fronts”.
“In 2020, regulators stepped in to help fill the ESG disclosure void in the industry. We welcome more comprehensive and clearer ESG regulation; however, we are concerned about a lack of global alignment,” Sharps says. “If each country takes a unique approach to ESG regulation, ESG disclosure requirements for asset managers can become misaligned with those required of the underlying securities in their portfolios. “Uneven disclosure levels can ultimately distort the picture of a portfolio’s ESG characteristics for clients.”
The report, third in the annual series, mostly details how T Rowe Price implements ESG in its own investment strategies.
However, the paper says that the investment industry is moving fast to address ESG concerns with “climate change, diversity and systemic inequality” topping the agenda in 2020.
In fact, Sharps notes that investor ESG strategies have jumped ahead of regulators and companies, putting pressure on corporates to supply adequate data.
He says companies need to report “annually on ESG factors that have the most material impacts on the health of the business; ideally report alongside financial data, explaining the impacts”.
Investors also now expect firms to supply ESG information in line with the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD), Sharps says.
Furthermore, he says businesses should report “data on diversity of the employee population and greenhouse gas emissions (including material scope 3 emissions)”.
The T Rowe Price paper says 2020 saw a “strong momentum” for climate change regulation across the world with over 60 per cent of countries now committed to net zero carbon emissions targets.
Last year, for example, NZ introduced a zero carbon law, setting emissions reductions targets. The NZ government is also currently consulting on new carbon reporting standards that will apply banks, insurers, listed companies and most fund managers.
The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill passed its first reading in April ahead of four-month select committee process.
“While markets have anticipated the impact of some climate change legislation, namely in select sectors directly impacted by the transition from fossil fuels to renewable energy sources, the firm does not yet see widespread evidence that the potential impact is being recognized across the broader economy,” the T Rowe Price report says.
“However, as new regulations and legislation come into effect around the world, T. Rowe Price expects that the link between a company’s financial performance and its record on climate change will grow increasingly stronger across the global economy.”
The Baltimore-headquartered T Rowe Price has about US$1.6 trillion under management globally. In NZ the manager has several institutional mandates while Harbour Asset Management offers a T Rowe Price global equities fund in portfolio investment entity wrapper.
Earlier this month, niche investment industry consulting business, Morrow Sodali, published a survey echoing similar concerns as the T Rowe Price report.