The rise of ESG: How do smaller funds deliver sufficient reporting for investors

By George Ralph

The worldwide health crisis has been an important wake up call and is likely to increase the action and awareness of long-term sustainability risk, accelerating the transition to a more inclusive capitalism. Many companies have already shifted their attention to ESG as investors believe companies that perform well on ESG are less risky and are better prepared to deal with uncertainty. According to Barclays Investment bank, ESG investing is expected to grow at a firm-wide level, with 2018 to 2020 seeing over $100 billion flow into specialist ESG funds globally. To add to this, climate change is climbing up government agendas, causing regulators to become a catalyst in ESG activity.

But the question remains, how do small funds deliver sufficient reporting for investors? To begin with, data needs to be made useful and usable. Investors desire easily accessible data whereby data can be compared through data dashboards, providing graphic visualisation of the overall picture.   This has been at the forefront of General Motors’ approach to ESG reporting for example. Their 2019 sustainability report featured a menu of links to a comprehensive data resource and all reporting frameworks from every page of its digital report. Impressive and useful. Small funds could consider improving investors ease of access by providing a digital ESG resource hub in reports. This could give investors a point of reference and improve searchability when looking for specific comparable year-over-year data. Data management is an integral part to every funds business IT strategy, and for smaller funds digitisation can provide workflows to perform tasks historically done manually, freeing up resource.

Secondly, smaller funds need to be aware of a shift in types of data and disclosure, as investors are beginning to look for better insights into human capital management, global operations, risks and mitigation efforts. Big companies may attract lucrative investors through huge capital resources and efficient performance data, but smaller funds can look at disclosing its diversity data against key industry benchmarks. This will demonstrate how it is measuring progress against others and how it is using data analytics to define its efforts. Smart thinking can add value and these comparisons against larger funds are helpful to investors in their matchmaking between value and price.

Finally, small funds can look at adopting a strategy that prioritises content delivery according to audience needs. This will help reports better engage diverse audiences. Companies can do this by having a balance between a collection of elements that satisfy the many audiences of the modern ESG report. This requires treating each stakeholder set as a unique audience group and respecting their distinctly different demand from companies. To engage investors, smaller funds can use ESG resource hubs to make data easy to access and useful. For consumers, transparency can be showcased via social media, advertising and product labelling can be effective; and finally, employees will be engaged by digital storytelling in the report.