Insitutional investors struggle with data gaps on net zero reporting
The trend towards mandatory ESG regulations across the globe and a rising focus on transparency across supply chains, underscores the urgency for greater engagement between companies, their suppliers and their investors, say industry observers.
STACS
“Because of the launch of the ISSB standards in 2023 and new reporting regulations being introduced in countries like Australia, it is clear that companies will now have to start collecting Scope 3 value chain data,” Benjamin Soh, managing director of Singapore technology firm, STACS told AsianInvestor.
“At least 20% of your investments are going to have some materiality,” said Australian climate scientist Ben McNeil, a founder of technology firm Emmi Solutions.
Emmi Solutions
In reality, for superannuation funds in Australia, who are typically invested in resources firms such as Rio Tinto and BHP, it’s potentially much more than 20%.
For Unisuper, as one example, according to its 2023 climate report, Rio Tinto alone accounts for almost 20% of the carbon footprint for some of their member fund options.
Investors such as Unisuper are engaging clearly with the resources companies to encourage them to reduce emissions of their products, while actively seeking to diversify in other commodities, utilities and energy generation options necessary to achieve a net zero economy.
NET ZERO OPTIMISM
In relation to carbon footprint, Unisuper CIO John Pearce says “whichever way one looks at it, there is obviously a very long way to go in order to achieve net zero.
“How can we be confident that we will get there? Firstly, it is a 2050 target and progress is likely to be in quantum steps, not linear. And companies representing over 80% of the fund (by look-through value) have already set a net zero target and a further 7% have committed to material reductions.”
Unisuper
And as Pearce points out, the fund can over time, but before 2050, divest of any company it believes is not on the path to net zero.
In common with other super fund heads, Pearce is torn between wanting to provide full transparency on the fund’s carbon footprint, with the caveat based on the significant limitations of incomplete or inconsistent data.
“Bear in mind that funds represent an aggregation of equity and debt (in Unisuper’s case) in over 3000 companies,” Pearce said.
What many companies do to try and estimate their emissions, is gauge their revenues by taking an average of the carbon intensity of that revenue, according to McNeil.
“For example in the case of BHP they’ll take the sector average of the mining sector or iron ores. In reality that’s very crude. What they need to do is apply a number of different indicators,” said McNeil.
While the limitations of current emissions data still poses challenges, the increasing collaboration between companies and investors, coupled with the refinement of reporting methodologies, will be instrumental in driving meaningful progress towards achieving net zero targets.