Here’s more fodder for the “express sustainability in business fundamentals, not operational metrics” cannon. Responsible Investor writes:
“The largest US asset managers have told Democrat and Republican financial officials that they are investing in line with their fiduciary duty after being caught in the middle of letters from both sides on the topic of ESG.
The opening shot was fired in late July when 26 Republican state financial officers wrote to a long list of investors and banks requesting them to ‘take specific steps to reaffirm and operationalise their commitment to traditional fiduciary duty’, including commitments not to use passive funds for activist voting or engagement, and to disclose their ESG-related affiliations.”
T Rowe Price responded to the letters by saying it would “uphold an approach to fiduciary duty grounded in transparency, accountability and long-term value creation” and commit to “a fiduciary model grounded in financial integrity, not political advocacy.” The firm continued:
“We believe any asset manager, as a fiduciary, should analyse material financial risk issues related to climate change in the context of their client mandates, along with other relevant considerations such as business strategy, quality of management and capital allocation.”
JPMorgan Asset Management said it “’deals in facts’ when it assesses financially material information to better understand investee companies.”
Just to make sure state regulators get the message, “the phrase ‘fiduciary duty’ appears 295 times in the 290 pages of responses and associated emails in relation to the Republican letter,” according to the article.
This underscores a number of conclusions in our new Compendium on Sustainability Financial Disclosures, including:
- “One common metric disclosed [by U.S. publicly traded companies in 10-Ks and sustainability reports] is corporate spending on and/or capital allocations for sustainability initiatives. Although these imply that companies assessed the return on investment to obtain approval of the funds, very few companies report financial gains/ROI/IRR achieved, expected or even a general hurdle rate used to assess capital projects.
- Absent sustainability financial value information from companies directly, investors and ratings organizations are forced to do excess work to convert disclosed operational metrics to financial values and apply their own methodologies, assumptions and guesswork to those conversions. Executives and sustainability professionals are missing an opportunity to reduce investor and ratings research/due diligence efforts, errors/omissions and misinterpretations.
- Formally disclosing financial value of sustainability efforts can be a point of competitive advantage — controlling the narrative compared to peer companies that do not report the values, better meeting investor demands and reducing disagreements with ratings agencies.”
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