London Stock Exchange Group Issues ESG Reporting Guidance

The London Stock Exchange Group has come out with guidance on how companies should report on their environmental, social and governance (ESG) investment practices. This comes about as investors are more interested in a standard approach to how companies report on such matters. The guidance will prompt companies on what sorts of information investors are looking for regarding their ESG investments.

Martin Skancke, board chair for the Principles for Responsible Investment said, “Institutional investors need investment-grade ESG data to accurately inform their decision making and asset allocation. Exchange operators have a major role to play in supporting enhanced data disclosure, so we commend the London Stock Exchange Group for their leadership towards improving dialogue and ESG data flows across the investment chain, and call on other exchange groups to follow suit.”

The LSEG guidance focuses on eight priorities for companies in their ESG reporting practices:

The relevance of ESG factors, such as climate change implications, to a company’s strategy and how it plans to benefit from or reduce the impacts of such factors
A clear explanation from companies on what the impact will be of ESG factors on their businesses, and how such factors could impact financial performance
ESG data that companies provide should be clear, consistent and based on global standards
There are a variety of standards for ESG reporting and the ones that investors are more interested in include standards put forth by the Global Reporting Initiative and the UN Global Compact, among others
The outlet for ESG reporting could include a company’s annual report or a stand-alone report, but the disclosures should be relevant for investors
How to deal with global regulations as companies prepare their ESG reports
How to communicate on a company’s exposure to green products and services
The ESG disclosure standards for a company looking to raise debt financing

LSEG hopes this ESG reporting guidance initiative will make companies more attuned to providing good quality ESG input to investors, besides inducing interest in innovative sustainability investments, leading to standardization on global reporting and providing investors with adequate input to make informed decisions.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

LSEG has based its guidance on previously issued standards reports from the Financial Stability Board’s taskforce on “climate-related financial disclosures” and the United Nations’ sustainable development goals.

To put together the guidance, the LSEG obtained input from various listed companies of different sizes. The company also received feedback from investors and asset managers about the challenges they face in reporting on their ESG practices. According to the Global Sustainable Investment Alliance, more than one-third of institutionally managed investments globally, accounting for north of $20 trillion of assets managed, incorporate an ESG approach to management.

Although ESG investing is on the rise, PWC’s 2016 ESG pulse report finds that while investors are looking for ESG information they can understand, “there is work to be done to bridge the gap between what investors want and what companies are providing.”

For instance, although 81 percent of S&P 500 companies made ESG disclosures in 2015, PWC finds, most of these companies aren’t making disclosures in a format that would facilitate comparisons of companies by investors. Moreover, only 29 percent of investors reported being confident about the quality of the ESG input companies give them.

By Poonkulali Thangavelu

The private equity industry is expecting a much brighter 2017 compared with last year, according to a new survey of more than 200 private equity fund managers released by accounting firm BDO.

“We believe 2016 served as something of a reset for the private equity industry, which experienced a rocky 2015,” said Scott Hendon, partner and leader of BDO’s Private Equity practice. “But as we look ahead to 2017, there is plenty of reason for optimism. The economy is on the upswing, deal flow is increasing, and fund managers are eager to deploy uninvested capital in the year to come.”

That optimism seems to be mainly buoyed by the fact that 2016 was filled with so much uncertainty. But with the 2016 US general election, and the UK’s referendum to leave the European Union now in the rearview mirror, investors can look forward to the coming year with a little bit more clarity.

“Election years always carry some degree of uncertainty for the PE community, but 2016 was a particularly contentious and volatile year,” said Dan Shea, managing director with BDO Capital Advisors. “Still, improving fund manager sentiment likely has less to do with who won the election and more with the fact that it’s over. It’s easier for fund managers to plot their strategy with such a huge unknown out of the mix.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

BDO says that when the initial survey was conducted in October, some 56% of fund managers said they felt the investment environment was favorable, while 44% said it was unfavorable. But in a follow-up poll conducted two months after the election, the portion of fund managers who were optimistic jumped to 71%.

But not everything is rose-colored for the managers, who are decreasingly optimistic about fundraising. Only 53% of fund managers said they are raising new funds from limited partners, down from 64% in last year’s survey, and 74% in 2015.

Private equity managers are also tepid about international investments, with just 38% planning to increase foreign transactions in 2017. As a result, North America and Continental Europe are ranked the most attractive regions for new investments, cited as such by 53% and 23% of managers, respectively.

Brexit weighed heavily on the minds of European managers, 46% of which said they were worried about its impact on private equity investment. Meanwhile, only 5% of North American managers shared their concern.

“Cross-border investment will always carry unique risks and challenges” said Ryan Guthrie, partner, BDO Transaction Advisory Services. “Brexit, however, has further muddied the waters for PE firms exploring opportunities across Europe. Potential acquisition targets could redomicile, the UK could lose access to the broader market and investors will need to navigate an even more complex regulatory environment.”

Managers have also become increasingly less interested in Latin America, with just 6% citing it as a key investment region for 2017. Interest in Asia was also down, as 12% of fund managers said it was the best opportunity for new investments, compared to 15% of mangers who said that last year. And only 2% of managers thought their money abroad was best invested in the Middle East.

By Michael Katz