The ESG landscape has become increasingly vast and complex. There are now a great number of initiatives and reporting frameworks, which have made it exceedingly difficult to navigate the landscape. How and where to start if you are disclosing for the first time? Our Head of ESG, Jacqueline Faridani has selected some of the major frameworks fund managers should consider before making a start on ESG reporting.

Companies are now expected to report their ESG performance and risks. Basic ESG reporting will soon be mandatory in the EU, and for publicly listed companies in the US under the SEC. Failure to disclose ESG information could result in fines, shareholder action and divestment.

With ESG reporting and compliance are now becoming increasingly critical, largely in response to investor interest, understanding and navigating the reporting and regulatory landscape is now crucial for business.

The different frameworks focus on different areas and metrics. To decide which framework is relevant to a company’s activities, one must first consider the ESG ‘stakeholders’ (investors, employees, governments, insurers, boards, etc). Who are your key stakeholders and what do they want to see reported? Based on this, you will find several frameworks that are aimed at investors primarily, while others are relevant to a broader audience.

Below are some of the major ESG Initiatives and Frameworks that are relevant to financial businesses and fund managers.

United Nations Initiatives

The United Nations initiatives have played a critical role in responsible investing and advancement of sustainability. In particular, the three initiatives below are of great interest in the context of ESG:

1. United Nations Global Compact (UNGC)

Established in 2000 as a collaboration between the UN and leading companies. It is now the largest sustainability initiative in the world with over 8000 corporate signatories, who have agreed to observe ten principles of the initiative covering human rights, environment, anti-corruption, and labour.

2. United Nations Environment Program Finance Initiative (UNEP FI)

Established in 1992, this initiative is a partnership between UNEP and the global financial sector and aims to incorporate sustainability principles into activities of private sector financial organisations. It currently has over 300 signatories (banks, insurers, and investors) and consists of three frameworks:

a. Principles for Responsible Investment (UNPRI)

The PRI has developed six principles, providing guidance on incorporating ESG principles into investment practices. A PRI membership has become a mark of being a responsible investor. It requires members to report annually on their investment practices.


b. Principles for Sustainable Insurance (UNPSI)

Established in 2012 and applied by more than a quarter of the world’s insurers. Learn about its four principles here.

c. Principles for Responsible Banking (UNPRB)

Established in 2021, with more than 220 banks as signatories, representing more than one third of the global banking sector in total assets.


3. United Nations Sustainable Development Goals (SDG)

SDGs represent key global challenges in the areas of inequality, poverty, environment, climate change and peace and justice and were agreed on by all UN members in 2015. Even though the 17 SDG goals are aimed primarily at governments, many businesses and investors are reporting on their impacts on SDGs.

The 17 goals are shown below:

Conclusion

The ESG market is rapidly expanding. Acute investor interest in this area of reporting will push financial businesses and fund managers towards disclosure under a framework if they wish to stay ahead of their competitors. How they choose to do that is a company specific decision based on stakeholder requirements, key focus areas and required metrics.


Dr Jacqueline Faridani

Dr Jacqueline Faridani heads up Prospect Law’s fast growing ESG practice. She is an advisor in financial risk management with 20 years of experience in a variety of risk management, compliance and product control roles at Canadian, German, French and Russian banks and life insurance companies, as well as for the Canadian financial regulator (OSFI).

We use the combined experience of our senior lawyers and specialist advisers to cut through the noise surrounding ESG. We share reliable, practical information and training on ESG compliance, regulation and reporting for those looking for legal and technical guidance they can trust.

For more information on our ESG advisory please contact the specialist team.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

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This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

  1. ESG
  2. Finance
  3. Investment

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