Asset managers split in responses to ISSB drafts

Diverging responses to ISSB proposals on creating global baseline for climate reporting standards

Asset managers around the world have expressed their support for the International Sustainability Standards Board (ISSB) first draft on climate and sustainability reporting standards, but there are regional divergences that could cause headaches when the rules are finally implemented, according to research from Morningstar.

In the report, ESG Reporting: Asset Managers Express Divergent Views, the firm’s director of investment stewardship research Lindsey Stewart (pictured) analysed the comment letters of 20 large asset managers responding to the ISSB’s first draft proposals.

Stewart said in Morningstar’s own response to the proposals it highlighted investment firms need “some international convergence to be able to report meaningful aggregated information to end-users”.

While on the whole assets managers appeared to agree with this and supported the concept of the ISSB, there are conflicting views on draft standards around materiality, greenhouse gas emissions disclosures and international alignment.


First, there were differing definitions of materiality offered up by the asset managers. Morningstar divided these into three groups: those that support materiality, those that support a more flexible approach and those that support double materiality.

Five asset managers were supportive of a materiality approach that focuses on enterprise value. Three of these are US-based, reflecting the financial materiality approach required by US reporting regulations, while European asset managers said clarity was needed over how companies assess enterprise value while being mindful of the dynamic nature of materiality.

Another five groups supported a flexible approach using the materiality definition that is aligned with the relevant local jurisdiction’s own definition.

However, the majority said double materiality is the way forward – this was advocated by abrdn, Allianz, Amundi, Aviva, DWS, Fidelity International, PGIM,  and Schroders.

Stewart commented: “The focus on double materiality is being driven by regulation. In 2023, asset managers in the EU will have to report on Principal Adverse Impacts indicators at the entity level. The EU SFDR also demands that a financial product seeking a sustainable investment does not harm significantly other sustainable objectives.

“In the short term and in the context of this first sustainability standard, ISSB should at least acknowledge the dynamic nature of materiality: sustainability risks that a company assesses not to be material can change in response to stakeholder pressure, consumer and investor expectations, regulation and technological progress.”

Greenhouse gas emissions disclosures

Stewart said eight of the 20 groups – from a mixture of Europe and the US – agree with the ISSB’s proposal requiring disclosures about Scope 1, 2, and 3 emissions commenting that disclosure across all three scopes is necessary for investors to obtain a complete picture of climate-related risks and opportunities, and that methodologies for disclosing Scope 3 emissions in particular will improve rapidly. These groups were abrdn, Aviva, BNP Paribas, Capital Group, Fidelity International, Legal & General, Northern Trust and Wellington.

However, another seven groups, including US’s largest asset managers, advocated disclosures of Scope 1 and 2 emissions by all reporting companies but Scope 3 to only be disclosed in certain circumstances or phased in over time. They argued methodologies for disclosing Scope 3 emissions are not sufficiently mature to require mandatory disclosure by all companies at this time. These firms were BlackRock, DWS, Invesco, PGIM, State Street, T. Rowe Price and Vanguard.

Only one firm – Dimensional – supported mandatory disclosures only if deemed material by the company.

Stewart said Morningstar supported Scope 1 and Scope 2 GHG emissions being disclosed by all companies, and Scope 3 disclosures required that cite Scope 3 emissions reductions targets.

“In the medium term, the ISSB should create standards that encompass sustainability impacts beyond Scope 1-3 emissions, setting out a roadmap, including timelines, for this next stage of work.”

See also: – Asset owners want ISSB to go further with global climate framework

International alignment

This was another aspect where asset managers were split.

A large group of asset managers supported the ISSB’s draft standards alignment with the Taskforce for Climate-related Disclosure (TCFD) and the Sustainability Accounting Standards Board (SASB) frameworks. These included abrdn, BlackRock, Aviva, Dimensional, Capital Group, DWS, Fidelity International, Legal & General, Northern Trust, PGIM, State Street, Vanguard and Wellington.

For example, Capital Group said in its response letter: “We applaud the ISSB for basing the exposure drafts on the SASB Standards and the TCFD, two frameworks which have been extensively tested over the last years by institutional investors and public companies globally, and which have a successful track record.”

However, Amundi, Allianz, Capital Group, DWS, Invesco, Schroders and UBS called for greater collaboration with local regulators. Allianz’s response letter said: “We see a risk that there will be a significant gap between the ISSB’s global baseline and the EU’s ambition given the fact that the EU does not limit its materiality perspective to what is material for investors to assess enterprise value, but requires to fully embrace the inside-out view… The ISSB and EFRAG should urgently develop a collaboration model that enables global alignment and connect EFRAG’s work with the ISSB’s agenda.”

With so many divergences, Stewart reiterated concerns the ISSB will have a hard job pleasing all asset managers from the different regions, even if they do operate globally.

“As asset owners and asset managers invest globally, they need some international convergence to be able to report meaningful aggregated information to end-users,” he said. “On the whole, asset managers firmly agree with this but their responses in key areas addressed by the draft standards suggest that this goal will be difficult to achieve without major changes in approach by either the ISSB or other standard-setters globally.”


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...