JTC studies investment firms' adoption of ESG

Posted: 22/01/2024

JTC ESG reportA study of the investment trust industry by JTC Group has revealed a significant lack of consistency in the adoption of ESG standards. 

The research, among 375 investment trust companies across 52 sectors in the second and third quarters of 2023, showed varying levels of adoption of eight standards, in part reflecting the size of the trust company, the relevance of a specific standard and the cost of adoption.

The companies included in the research are primarily registered in the British Isles, though nine other regions are represented to varying degrees.  

The mean number of ESG standards adopted across all companies is 1.5, with the most common framework being the United Nations Principles for Responsible Investment (UNPRI), with 78% of companies (or parent companies) being a signatory. 

The Task Force on Climate Related Financial Disclosures (TCFD) and the United Nations Sustainable Development Goals (UNSDGs) were the second (23%) and third (15%) highest adopted frameworks respectively.

The dataset suggests larger companies tend to adopt a greater number of ESG standards, with FTSE 250 companies adopting an average of 2.1 standards, compared with an average of 1.2 standards for other companies.  

The adoption rates with the greatest variance between large and small companies can be seen for TCFD (40% vs 13%), SFDR (25% vs 8%) and UNSDGs (24% vs 10%). 

Low-level adoption of SDGs

JTC points to the low level of adoption of UNSDGs, which is arguably one of the simpler frameworks as it is free, has no specific reporting requirements and is not mandated by regulation. 

There are 17 SDGs; not all of which will typically be applicable, so a company has the freedom to choose a subset. 

Some investment trust companies included in the dataset decided to adopt all 17 SDGs, raising the question of what meaningful adoption of this framework looks like.

David Vieira_JTC_aug23David Vieira (pictured), JTC Group Head of Sustainability Services, said: "These findings are significant for the Channel Islands, which are major and growing investment fund hubs and have ambitious sustainable finance strategies.

“The report highlights what we have observed for some time, which is that market participants such as investment trusts and their clients are searching for ESG disclosures that follow the Goldilocks principle – they can’t be too generic or too specific, but need to be ‘just right’ to provide the information needed for investors to make decisions. 

"While regulators and standards bodies have generally expressed a desire for sustainability disclosures and financial disclosures to be combined within one inclusive disclosure, the reality is that sustainability disclosures must adapt to the huge variety of underlying investment types in a way that financial disclosures don’t. 

"There is no magic bullet, but a general trend towards the consolidation of standards globally, as opposed to increased arbitrage, would be welcome progress and ultimately a positive direction of travel for the industry as a whole and investor confidence in ESG disclosures.”

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