Fund managers and the companies they invest in need to start preparing to report on Scope 3 emissions as soon as they can, Emma Bickerstaffe, managing director of ESG and sustainability at fund manager consultancy MJ Hudson, tells ESG Clarity‘s Natalie Kenway in this Green Dream video interview.
Groups should futureproof their business by understanding the level of disclosures that are required in upcoming regulations particularly around emissions, she said. She also discusses the UK’s fund labelling consultation, why groups will need to set the bar higher for fund categorisation and slavery free chocolate.
Watch the full video interview above or the transcript is below.
NK: I wanted to ask you about your expectations for 2023. How do you think the financial services will become more aligned with sustainable finance and have this more integrated?
EB: What we’ve seen this year and certainly what will continue to see into next year is an increase in ESG-related regulation and also a tightening of regulation relating to ESG and sustainability. And I think one of the biggest challenges we have in the industry is the concept of ESG is extremely broad, and a lot of the topics that it covers are broadly accepted as really good business practice.
Because of that, managers for years have been assessing potential investments in this way. And with the introduction of sustainable finance, we’ve seen a wave of ESG-related funds on the market. But this has really led to confusion within the investor community around what these funds are actually doing and what they seek to achieve.
This confusion has created greenwash scandals. It’s created a lack of transparency. But the most important impact of this for all of us is that it really undermines an investor’s ability to tackle these very important global issues.
In the UK specifically, we’re likely to see a huge amount of activity around the UK’s SDR or Sustainable Disclosure Regime. And this is really the UK’s response to providing consistent labelling of funds related to sustainability. So, it’s a series of fund labels and a very clear definition of what those funds need to achieve in order to use or apply those labels. Broadly aligned to the EU SFDR, but not exactly the same. It’s a labelling regime, not a disclosure regime.
And I think for managers who are in scope for multiple regulations, it’s going to be an incredibly tricky time as they try and navigate those various standards.
NK: Yes, that certainly kept us busy recently and I’m sure we’ll be talking about that for a long time. Moving across to Europe and we’ve got an impending SFDR deadline coming up. How do you think companies coping with complying with that?
EB: Yes, I think there’s still quite a bit of confusion and a little bit of hesitancy around SFDR compliance. And it’s not surprising. I think within the regulation there are certain elements which are still very much left to interpretation, a little bit vague. And we spend a lot of time with managers really trying to interpret what that means and how to best position themselves within the SFDR regime.
At MJ Hopson, we provide both the legal but also the strategic perspective for clients who are within scope for SFDR, and those two perspectives are not always the same thing. So from a legal standpoint, while managers could do the bare minimum to comply, the strategic angle really is about paying close attention to the response from regulators across Europe.
I think what’s very evident is that there’ll be a tightening of the requirements and the bar will be set a little bit higher in future around SFDR compliance. And we’re really keen that managers not only comply today, but also really futureproof the positioning of their funds in future.
NK: We also have another requirement coming up. The International Sustainability Standards Board have outlined that perhaps we should be looking at including Scope 3 emissions in disclosures. I know that is not going to be something that’s happening straight away, but how tricky do you think that’s going to be for companies to get to grips with that?
EB: It’s a huge challenge, actually. I think Scope 3 relates to emissions that are generated from outside of the business in the value chain, for example.
So, it includes things like business travel, the use of a product, the disposal of a product. But the challenge, of course, is to capture data on those emissions. Companies are very reliant on their suppliers and data sources outside of their organisation. And I think the biggest challenge is really capturing accurate information from those various stakeholders and reporting it in a structured way so that those companies can already start reporting on Scope 3.
But I think our advice to any firms looking to really get ahead of that reporting requirement is to engage your suppliers and your stakeholders early to really start capturing this data. Some may choose to use a platform to do that, and we have a platform called ESG Advantage, which helps companies measure their carbon footprint, but then also monitor progress over time, which has proved to be very, very useful for lots of managers given the complexity of the data challenge around carbon emissions.
But no matter how firms choose to go about it, our message is certainly to get started as soon as you can.
NK: We always finish the Green Dream with this question. What is your favourite sustainable drink or snack?
EB: I spend a lot of time in Amsterdam, and we have a fairly big team out there and I’ve become extremely fond of Tony Chocolonely chocolate. Not only does it have beautiful packaging, but most importantly, they’re on a mission to create 100% slavery free chocolate. And they do a great job of shining a light on some of the challenges that face cow farmers and really lead by example and they’re obviously really passionate about achieving that mission and that’s something which really chimes with me personally.
NK: Thank you, and who doesn’t like chocolate?! Thank you so much for your time and for coming in.
The Green Dream, the video series interviews key figureheads in the responsible investment world to get their views on the latest trends, news and movements in this evolving landscape.