PRI Awards 2019 case study: Study of ESG information disclosure

Project overview, objectives and why the research breaks new ground

Japan’s Government Pension Investment Fund (GPIF) hired Nissay Asset Management (Nissay AM) to conduct research into how and what information companies disclose when it comes to ESG reporting.

The research is part of the pension fund’s drive to increase investment in ESG and environmental indices. GPIF realised that, in order to do this effectively, it needed more information on the extent to which companies disclose their ESG performance.

One reason why many companies have not made more substantive progress towards fuller ESG disclosure, according to the research, could be the sheer number of ESG-related guidelines and frameworks they encounter. These include the International Integrated Reporting Framework, GRI Standards, SASB Standards and TCFD Recommendations. It could be argued that this glut of frameworks and standards has caused greater confusion and some element of ‘reporting fatigue’ when it comes to disclosing ESG performance.

Many firms are confused as to what information should be disclosed in the first place, and which should be prioritised. The aim of Nissay AM’s research was to help clarify these issues for corporates. It’s ultimate objective was to provide a more complete picture by comparing major global ESG information disclosure frameworks and finding common ground.

Report methodology

Nissay AM’s approach sought to compare ESG disclosure at the individual-item level, and at the indicator level. The firm examined a total of 1,307 disclosure items and indicators from the major global frameworks and standards. The research then proposed practical recommendations for companies, asset owners (including GPIF) and the international bodies that set ESG standards and frameworks.

The wider trend addressed in this research was the recent increase in ESG information disclosure frameworks and standards globally. With the rapid expansion of responsible investing along ESG lines, and growing demands for corporate ESG information disclosure, these kinds of guidelines and standards are increasingly important. However, each set of standards or guidelines is set by different entities, often with differing objectives.

Nissay AM created a methodology that used comparative analysis for different international ESG frameworks, combined with intensive research and direct interviews with scholars and practitioners from the major global ESG information disclosure frameworks and standards bodies. The ultimate aim was to find some commonality between the different frameworks and so make it easier for companies to understand how, and what, to disclose when it came to ESG performance.

How the findings have been applied and the wider benefits to investors

The research resulted in three key findings.

1. The type of ESG information varies according to the strategies adopted by investors. Active strategies, for example, need more detailed qualitative ESG information that helps to garner a deeper understanding of individual companies, while passive investment strategies need information that is easier to quantify and can be used for comparative analysis. Impact investors, on the other hand, need more information on the positive or negative economic, environmental and social impact of companies.
2. The varied international frameworks, standards and guidelines tended to overlap in a number of key areas. Focusing on these common parts, the research found, would lead to more effective and efficient investor-relations for companies.
3. The relationship between disclosure items and indicators for each framework or set of standards was highly intricate, and so it was often difficult to extract consistent advice from them. The research could therefore be used as a call for greater consistency between international ESG reporting bodies.

Key recommendations include:

• Companies should get a better understanding about different ESG investment strategies, and the fact that each strategy has different ESG information needs.
• Asset owners, like GPIF, should consider engaging with the people and bodies who set international ESG reporting standards in order to encourage more consistency.
• International ESG reporting bodies need to work together more in order to produce guidelines that are more consistent across borders, at the individual-item and indicator level.