Wide variation in levels of ESG reporting among the investment trust sector, report finds

Investment trusts produce ESG reports of widely varying quality, which could be linked to the size of the trust, researchers found.

Annual reports can contain as little as half a page on ESG, or as many as 50, but are described largely as “short and lacking in detail”.

Researchers looked at the predominantly UK investment trust sector and noted the discrepancies in quality and approaches to ESG reporting were significant at a time with the UK regulator wants to see a level playing field across ESG reporting.

Of the 375 investment trusts sampled, 87% did not produce dedicated ESG reports but did often produce them within their wider annual reports – apart from 10% who did not provide any ESG details in their public documents.

JTC Group, the fund administration firm that published the report, said there was a “considerable lack of consistency” across ESG standards adoption by trusts.

David Vieira, JTC Group head of sustainability services, said: “In general regulators and standards boards have expressed the desire for the sustainability disclosures and financial disclosures to be combined within one detailed inclusive disclosure, making it easier for investors and stakeholders to see everything in one place.”

The firm highlighted that the Financial Conduct Authority’s PS23/16 Sustainability Disclosure Requirements stated that the regulator “wants to see a level playing field for all firms operating across the market to maximise the benefits of the regime for consumers”.

But cost was thought to be a factor that influenced the varying levels that trusts adopted one or more of eight ESG standards – such as the UN Principles on Responsible Investment (PRI), which was the most popular standard to be adopted.

The size of a trust and the relevance of a specific standard were the key factors. The research suggested that larger companies tended to adopt a greater number of ESG standards, with FTSE 250 companies adopting an average 2.1 standards, compared to an average of 1.2 standards for other companies.

The mean of standards adopted was 1.5 and the report – which is called ‘ESG in the investment trust industry’ and includes trusts from outside of Britain – found the United Nations Sustainable Development Goals (UNSDGs) was the third most popular standard. JTC said this was “surprising”, given the standard is free to use and is arguably the simplest.

Vieira added: “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.”

He added that there is “no magic bullet”, but a general trend towards the consolidation of standards globally would be welcome progress.

Richard Stone, chief executive officer of the Association of Investment Companies (AIC), linked the diversity of standards adoption and other ESG practices to the diversity of the investment trust sector, which invests in “everything from mainstream equities to wind farms, from healthcare properties to space technology”. 

He added: “Given this diversity it is inevitable that, as the report highlights, the extent to which individual investment trusts highlight ESG issues, adopt specific standards, or promote their ESG credentials will vary significantly.”

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