INSIGHT by the Principles for Responsible Investment (PRI)
The Principles for Responsible Investment (PRI) has today published a new report that assesses the climate data that investors need to make informed decisions and engage effectively with their investments. The report, supported by Chronos Sustainability, explores what investors need to know to be able to realize their net zero commitments, the quality and coverage of existing climate data and actions that should be taken to build an adequate data ecosystem.
Contained within the report are three overarching recommendations that help to explain the disconnect between investors’ needs and what the market currently provides.
- Improve corporate disclosure
Corporate data underpins the majority of data products that are currently available. As such, improving corporate disclosure is a pre-requisite to improving the coverage and quality of data products. - Improve coverage and quality of products
Data providers need to improve coverage, data provider transparency, forward-looking analysis of climate data, and portfolio-level metrics and methodologies. - Facilitate data comparability
Wider consensus-building activities are needed to establish common definitions and agreement on sector and geographic pathways. Over time, these will feed back into the development of data products.
“These findings shine a light on the gaps that currently exist between investors’ need for high quality climate data and the data currently available. As is made clear by the findings, investors need better coverage and quality of climate data to deliver on their net zero commitments. Going forwards, greater convergence across the sector on common definitions and transition pathways will also be necessary to strengthen the climate data ecosystem.”
-René van Merrienboer, PRI’s Director for Sustainable Systems, commenting on the report
The report builds on previous literature by explicitly analyzing what investors are looking for. This was then supplemented by a comprehensive research process involving:
〉A review of the requirements of the 17 major investor led net zero and similar climate change frameworks and initiatives.
〉A review of 62 climate data products, provided by 19 data providers.
〉Interviews with 16 institutional investors around the world about their climate data needs.
The three recommendations are subsequently broken down into several themes:
1: Improving corporate disclosure, and in particular the coverage and quality of corporate climate change disclosures:
a. Standard-setters and regulators should introduce mandatory climate disclosure through regulation for companies, with rules that require:
i. Disclosure of emissions on an ownership (equity) basis, broken down by type of GHG emissions, the proportion of emissions verified, an explanation of changes in GHG emissions and climate targets, and proposed strategy to meet targets.
ii. Disclosure of industry metrics and corresponding targets for those in the 12 most energy-intensive sectors
iii. Publication of transition plans, describing how companies intend to align their business models with net zero by 2050.
2: Improving the coverage and quality of products, most noticeably:
a. The coverage of data products
i. With data providers extending their coverage of the investable universe outside of listed equities and corporate bonds.
ii. Where required, investors, investor-backed net zero initiatives and data providers to work together to develop climate data reporting and assessment methodologies.
b. Data provider transparency, with data providers ensuring they:
i. Disclose the source(s) of entity-level emissions data and corresponding reporting year.
ii. Provide ownership-based emissions data.
iii. Disclose the uncertainty in emission estimates, and related methodologies.
iv. Disclose the methodologies, data and assumptions used for assessing climate change governance.
c. Analysis of forward-looking company climate change data, with data providers providing products that analyse:
i. The credibility of company emission targets.
ii. The alignment of a company’s strategy with the company’s emission reduction targets and climate change strategy.
Have you already read?
Sizing the ESG data challenge for asset owners | Part 1
d. Portfolio-level metrics and methodologies, with investor-backed net zero frameworks and initiatives, in conjunction with data providers:
i. Developing methodologies that enable investors to report on portfolio- and/or fund-level real-world emission reductions and net zero alignment.
ii. Assessing the overall uncertainty of portfolios’ emissions.
iii. Analysing and reporting on the reasons underpinning changes in portfolio-level emissions and emission intensities.
iv. Disclosing the methodology, scientific basis and uncertainty of investment and portfolio ITR assessments.
v. Develop tools to integrate the goal of net zero into strategic asset allocation at the portfolio or fund level.
3. Facilitating data comparability through:
a. Common definitions, with investor-backed net zero frameworks and initiatives:
i. Adopting a common definition of alignment for companies and other entities.
ii. Developing and agreeing a common approach to assess and report fossil fuel reserves.
iii. Developing and implementing a common set of principles, or definitions, to be used by data providers in identifying climate solutions.
iv. Engaging with data providers to adopt these three definitions, and ensure alignment with the data and information provided.
b. Sector and geographic pathways, with investor-backed net zero frameworks and initiatives:
i. Agreeing on a set of principles by which geographic and sector-specific transition pathways are developed.
ii. Agreeing on specific geographic and high-impact sector transition pathways.
iii. Engaging with data providers to encourage the use of specific geographic and high-impact sector transition pathways to assess company alignment.
| about
The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 5,000 signatories, managing over US$121 trillion. For more information visit www.unpri.org
Chronos Sustainability was established in 2017 with the objective of delivering transformative, systemic change in the social and environmental performance of key industry sectors. Led by Nicky Amos and Dr Rory Sullivan, it blends industry and sector-leading expertise with high quality service and delivery standards to provide intelligent outcomes for its clients and partners.
Chronos works with more than 60 clients, including institutional investors, corporates, civil society organisations, intergovernmental organisations and industry bodies, on sustainability-related projects and initiatives around the world. It is currently leading or supporting a series of major industry transformation projects including the Transition Pathway Initiative, Climate Action 100+, the Global Coalition for Animal Welfare, the CCLA Corporate Mental Health Benchmark and the Business Benchmark on Farm Animal Welfare.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
