The past year has seen Cbus Super bolster its team and systems, adding to its internalisation of investments and continuing down the journey of fee reduction to deliver the best return of the fund’s 37-year history. Amanda White spoke to CIO Kristian Fok.

Cbus Super, the A$59 billion Australian industry fund delivered an annual return of 19.34 per cent for its growth option, the largest return in the fund’s 37-year history.

A willingness to be exposed to equities and a slight overweight position was the main contributor to the return with an additional alpha of 1 per cent added to the total portfolio from the equities’ allocation.

Equities make up about 50 per cent of the portfolio with the inhouse team managing about a third of that. The 4 per cent overweight allocation was in part deliberate but also a result of unfulfilled unlisted allocations being parked in equities.

“Last year we had strong alpha on global equities and Australian equities was flat, this year it was reversed and the Australian allocation was a really strong performer,” says Kristian Fok, the fund’s chief investment officer. “It’s about building robust portfolios that can make contributions at different times. The key thing is when things rotated we didn’t shift allocations we remained balanced and maintained our allocations so we didn’t lose performance.”

The Australian equities allocation is biased towards stockpicking with small and mid-cap allocations managed by a combination of the inhouse team and external managers.

In addition Fok says the fund’s unique position in unlisted property was a great contributor to its return. The fund’s property allocation returned 11.3 per cent compared with low to mid-single digits of the general property manager cohort.

“A big chunk was in Cbus Property and developments that were completed during that period, so the development profit was realised,” he says. “Leveraging off the insights from being closer to the sector helped.”

Cbus is underweight fixed income but has a significant overweight in cash, with about $5 billion waiting to be deployed. Fok says the fund is looking at boosting allocations to property and infrastructure, where it is already quite active, but also in credit.

“We are still quite active in the unlisted space, we’d like to do more there but it is probably going to be harder to put that money away and is becoming more challenging from a pricing point of view. We have the advantage of being able to develop property,” he says. “To be honest it is a once in a decade opportunity when markets correct like they did. The hardest thing is managing the liquidity aspect of it rather than the opportunity.”

Internalisation

Cbus currently manages 36 per cent of its assets internally, with the expectation that will rise to about 40 per cent. All the strategies are benchmarked against external equivalents.

Some of the strategies measured as ‘internal’ use the internal team for idea generation and external managers for execution, and Fok is open to new strategies and ideas.

“Within the 36 per cent internal there are some strategies where we partner with managers, particularly on the quant side. We design the strategy and they implement. It is very economical and allows us to think about ideas and opportunities and express them through our own IP and research.”

During Fok’s almost nine-year tenure as CIO, the investment team has grown from around 10 to now 115 with a further 20 positions to be filled across equities, responsible investment and operations.

Despite the internalisation Fok says the allocation to managers has actually increased. “65 per cent of the assets are still external and the assets have doubled.”

And like other asset owners Cbus has reduced the number of relationships, looking to managers to get insights that can benefit their decision making. An example is the insights on the built environment from the private equity investment with Brookfield Technology Partners.

“As an investor in that fund and co-investor in some of the companies we have the benefit of being an investor but also how that technology might be incorporated in the assets we own and we can introduce those insights to our managers so they can benefit,” he says.

“When we are adding sophistication and complexity we need the right data to understand the risks we are taking”

Fee reductions

In the past five years Cbus has reduced its asset management fees per dollar invested by 40 per cent.

In the past year alone investment costs, including transaction costs, have reduced by five basis points to 51 basis points.

“Internalisation has been a big contributor but also we look at fees with a holistic view and discipline,” Fok says. “Even this year there has been a lot of focus in talking to managers around what their fees are and how we can be more innovative around how we do things to keep good alignment and leverage scale.”

Cbus has been deliberate in passing on savings to members as it becomes bigger, with the reduction in fees coinciding with an increase in AUM of 20 per cent.

“You can get huge leverage with internal management, you can have the same people managing 20 per cent extra in assets with no extra cost,” he says.

Total portfolio management

Fok believes investors will have to work harder for the opportunities going forward and is looking to combine the top-down asset allocation function with ideas from the bottom up.

Mark Ferguson recently joined the team as head of total portfolio management overseeing three key aspects of the portfolio. The first is portfolio development which includes traditional asset allocation, and tilts across different time horizons, as well as thematics and longer term trends. He’ll also look after portfolio implementation including securities lending, options strategies and more sophisticated strategies to become a provider of liquidity.

“As you grow larger there needs to more sophisticated ways to express your market views and that will be uplifted. For example Mark has managed currency strategies and we will look to do more trading inhouse,” Fok says. “We will continue to increase the breadth of that and the opportunities. The challenge around low interest rates means fixed income is not as defensive as you think and having more tools will be really important.”

And the third area is the fund’s quantitative capabilities. This includes managing money quantitatively but also providing insights from those strategies to the broader team.

“That also provides the automation and insights to help the team gather broader information to make better decisions. They will continue to work with the direct investing teams and see that the information flows through into the valuations of that team.”

Cbus has a program of work around bringing in key data and using that to help automate some of its processes. One example is the use of the Matrix Investment Data Management system that provides a clearer look through of the true nature of exposures and the indirect fees.

“When we are adding sophistication and complexity we need the right data to understand the risks we are taking,” Fok says.

The fund is also looking to restructure the way its custodian pulls together the different investment accounts so the fund can create options in a building block approach in a more granular way.

“It is important to be able to take control around rebalancing, and we need a system that can handle it, automate the information and seamlessly interface with the custodian. The technology aspect is incredibly important in allowing us to be more granular in the way we look ag things, but also so we can scale.”

As the fund looks to more mergers, a hallmark of the Australian superannuation landscape, it is expanding its investment options to encapsulate the full market offering.

The fund recently merged with Media Super, and while Fok says he can’t talk on the record about any future mergers he says the fund is in “constant dialogue” is of the firm belief that scale matters and mergers are good for its members.

 

 

As more and more investors make net zero commitments in the lead up to COP26, sustainability is at the forefront of investors’ minds. But what does it mean to invest sustainably?

There is a plethora of events that tout the value of sustainable investments, but very few that interrogate the subject in the way that allows institutional investors to overcome the challenges of implementation.

The Top1000funds.com Sustainability in Practice event, to be held online on September 8 and 9, will do just that.

It will bring together asset owners, managers and academics for a practical take on sustainable investment. In order to implement the sustainability goals that asset owners have set as strategic initiatives they will need board and C-suite buy-in and directive. This conference is specifically aimed at CIOs and showcases practical case studies on how investors around the world are tackling these issues.

We will look at whether the metrics, measurements, returns and risks are adequately framed and understood; how investment leaders can navigate the politics of sustainability and prevent greenwashing from prevailing; examine the allocation strategies and investments that investors should be targeting and what the tangible implications for investors’ portfolios are; as well as the role asset owners have in allocating capital and how they overcome the obstacles they will face.

The event program has had the invaluable input from asset owners all around the world including AP4, OPTrust, OTPP, USS, PGGM and UPP.  Some of the speakers are highlighted below and you can click here to register or receive more information.

  • Jeb Burns, chief investment officer, MERS of Michigan
  • Evan Cairns, head of climate change strategy, Aberdeen
  • Niklas Ekvall, chief executive, AP4
  • Chris Greig, Theodora D. ’78 & William H. Walton III ’74 Senior Research Scientist in the Andlinger Center for Energy and the Environment at Princeton University
  • Janine Guilott, chief executive, The Value Reporting Foundation
  • Zsolt Kohalmi, global head of real estate, Pictet
  • Stephen Kotkin, Professor in History and International Relations, Princeton University
  • Bill Lee, chief investment officer, New York Presbyterian
  • Jie Lu, head of investments, China, Robeco
  • Innes McKeand, head of strategic equities, USS Investment Management
  • Dr Arun Majumdar, Professor of Mechanical Engineering and Photon Science, Stanford Energy
  • David Neal, chief executive, IFM
  • Carsten Stendevad, co-chief investment officer for sustainability, Bridgewater
  • Jaap van Dam, director of strategy, PGGM

The event is open to asset owners and consultants only.

 

 

Pensions and other institutional investors are increasingly focused on ESG investing. But what is the point of ESG investing?Obviously, the investing part of that question is focused on a fair return, and potentially some alpha, to the investor. But the ESG part of the question has numerous potential goals. Among those are avoiding harm, mitigating ESG-related investment risk, rewarding strong ESG performance, and encouraging improvement in corporate behavior.

This final factor – improvement – is often overlooked: what about companies that are improving their own ESG scores? Don’t we want to encourage them, and isn’t there an investment opportunity there? It is fine to invest with companies that already perform well, but the real difference will come with companies that improve how well they perform.

Let’s focus here on the environmental aspects of ESG. Here, the improvement factor has the potential to generate better investor returns, have a positive effect on the environment, and fit within the ERISA guidelines being developed by the Biden administration.

Improve returns

It stands to reason that an investment in a company that is improving its environmental performance should perform well. As energy companies and utilities focus on de-carbonisation and renewables, they are rewarded in financial markets. This is supported by the fact that, in recent years, MSCI ESG indices have outperformed standard MSCI indices in the US, in Europe, and globally.

Think of a company’s ESG scores in the same way we think about its price/earnings ratio, especially as a value investor. The companies with lower P/E ratios have the greatest chance to improve. A value investor does not just seek out companies with low P/E ratios. A value investor wants to see the chance or catalyst for change in corporate behavior or a systemic change in that company’s marketplace that gives the company a structural advantage.

Similarly, when utilities use less coal and more natural gas, or when automobile manufacturers move toward electric vehicles and consumers want them, they are rewarded by a market that believes that is where future profits lie.

Positive effect on environment

Just as investors seek access to opportunities for future profits, so should ESG investors seek out better future environmental behavior. Of course, companies with high ESG scores are likely to be solid investments because they are well managed. But the improver thesis is different.

If a company is already managed to a low carbon footprint and its business model is unthreatening to the environment, then an investor will not expect to make an impact on improving that company’s behavior or fossil fuel usage when that investor invests.

But if an energy or mining company sees where the world is headed and makes a commitment to cleaner policies, this holds the promise for a genuine improvement and effect on the environment. The investor must follow company communications closely or, with institutional investors, must engage with management in order to reach a conclusion about the company’s commitment to improvement. If that commitment is real, the company and investor together (like a value investor who sees structural change benefiting a low P/E company) have the chance to genuinely improve environmental outcomes in a measurable way.

What better way to invest: finding structural opportunities to go from lower performing to higher performing.

Coming ERISA guidelines

ERISA does not regulate public plans, but many public plans are guided by its provisions , and of course, corporate plans are governed by them.  The Trump administration issued a regulation under ERISA that would have limited the use of non-pecuniary factors in the selection of investments for ERISA plans. However, the Biden administration has issued guidance stating that it will not enforce those regulations. More importantly, President Biden also issued an Executive Order in which he directed the Department of Labor to “identify agency actions that can be taken under [ERISA] and any other relevant laws to protect the life savings and pensions of United States workers and families from the threats of climate-related financial risk…”.

This moves U.S. policy directly toward the improver thesis. It is likely that the DOL will not only permit the use of socially conscious factors; it may encourage or even require that they be considered material. Note that the language of the Executive Order does not speak about what factors may simply be considered. It directs DOL to “identify…actions that can be taken…to protect…savings and pensions…from…climate-related…risk.”

In short, investing in companies that are improving environmental performance and outcomes  will do exactly that.

If we want to improve environmental outcomes,we need to identify and invest in companies that are improving theirs.

Charles E.F. Millard is a Senior Advisor for Amundi U.S.; he is the former Director of the U.S. Pension Benefit Guaranty Corp.

Customised ETFs are the new active management according to Jeb Burns the chief investment officer of MERS of Michigan which is using ETFs for about a third of the fund.

MERS developed a customised ETF based on the S&P 500 quality, value and momentum top 90 per cent multi-factor index, which is managed by INVESCO and launched only a few weeks ago.

It’s designed to be a core holding although Burns says he expects ETFs to also be used to gain more thematic exposures.

“If there is an area where we don’t think traditional active management has a role, we’ll use ETFs,” he says. “They are more liquid so when markets fall off we can rebalance. The main advantage is they are liquid and you can target the exposure.”

The $15 billion fund now uses ETFs for about $5 billion of the fund across both equities and fixed income.

In fixed income the internal team has a proprietary model that informs when and where it should shift its allocations and it uses ETFs to express those views.

“It’s much easier to build the exposures you want with ETFs, I think that’s a trend you’ll see. People will create customised ETFs which will be the new active management.”

But Burns is also quick to point out that ETFs will not entirely replace traditional active management and the fund is doing an active emerging markets equities search right now.

Incorporating ETFs into the asset allocation program is one of a handful of projects the fund has underway this year.

As CIO Burns is acutely aware of maintaining the closeness of his team as the months of working remotely tick by. It’s currently going through an exercise to increase collaboration when the team can’t be face to face, with individual team members doing research on particular macro themes and presenting the findings to the broader team.

Economic risks, medium-term and long-term trends inform the portfolio and when the investment policy statement is reviewed annually typically some of the views developed by analysing those trends are reflected in the portfolio management view.

“Medium term risks inform us by look for trends in sectors,” Burns says. “For example we have been investing in medical technology for a while which is directly related to the aging demographics in the developed world.”

The aging population is one of about five long-term trends the fund looks at alongside rising taxes, aging infrastructure, de-globalisation and the rise of ESG.

“Demographics will tell you your view on interest rates. It informs the model we overlay the whole portfolio with. Retirement is inflationary as people like to spend money,” he says, estimating that inflation will be more like 3-4 per as the decade moves on because more people are retiring.

“There are inflationary forces that are slowing building, that helps us take positions earlier and inform the things we want to be concerned about.”

To mitigate this risk and for inflation protection MERS has invested significantly in real assets, which make up about 10 per cent of the portfolio, including farmland, permanent crops and infrastructure. It may also add some TIPS.

“When I look at all the real assets we have I feel in a good place regarding inflation. We are short on duration because rates are low. I’m old fashioned, if you print this money at some point you’ll have inflation.”

Some of the themes the fund examines – which also include the rise of populism, investment industry consolidation, and supply chain realignment – develop organically in the investment program.

But in this push for more team collaboration some of the themes being examined are more proactive, including an examination of crypto and nuclear energy, and if they resonate with the team they are captured as an addendum to the strategic plan.

“With crypto it is hard to figure out what it is, but if you rephrase it and say the digitalisation of finance, then that won’t go away and will create opportunities.”

He also points to the increase in electrification which means an increased demand for industrial metals as an opportunity.

“We want to capture these ideas and write them down in our documents so then in three years from now we can look at the strategic plan and see our objectives.”

The fund has performed well in the first half of the year, with outperformance of 220 basis points versus the benchmark.

“It is so nice to have a diversified portfolio and finally be rewarded,” Burns says.

The fund is slightly overweight international developed equities which he says should be rewarded in the second half of the year.

“We had a really good first half of the year. We are due for a little bit of a pullback but we are well positioned for the rest of the year. Inventories are still not filled up, we could be in a significant growth cycle.”

Asset owners looking for a heroic challenge need look no further than managing climate risk and playing a meaningful part in the net-zero energy transition.

There are three difficult beliefs in play on this. The first is accepting the strong scientific evidence pointing to potentially catastrophic risks and impacts if climate change continues on its current trajectory and that, without substantial collective action, society risks irreversibly damaging the natural and financial systems that sustain us. It’s hard to overstate the seriousness of this situation.

The second belief is that the nature of these risks is fundamentally different from the risks we have traditionally focused on in the investment world, in that they are systemic, undiversifiable, highly uncertain and impossible to hedge. These uniquely difficult risks make collective action vital and necessary through the nation-state commitments that are required to cascade down to all institutions to implement a just transition to a net-zero economy.

In a world looking for stronger leadership and for an investment industry striving for greater purpose, the net-zero framework is an appropriately purposeful and substantive change. Those asset owners that have made, or will be making, net-zero commitments are probably doing the right thing but there should be respect for every fund’s unique circumstances to reflect on this differently.
The third belief involves asset owners adding a net-zero-trajectory objective to run alongside and complement the central financial objective of maximising risk-adjusted returns on investments. The belief is premised on financial outcomes from net-zero investing being better in the long term, precisely because of the climate outcomes. While managing them together is a powerful proposition, it does imply a big modification of the current investment model. Not least because aligning two objectives at the same time can involve compromises or concessions. Here doing the right thing does not always make it possible to do things right.

For example, imagine in 2025 that net-zero-pathway companies make up only half the market. Does an asset owner pick from that half while recognising the material investment constraint and knowing also that the net-zero tailwind may now be a headwind. In other words, that these assets may be priced at a premium offering reduced forward-looking returns relative to others. So, doing the right thing may now mean struggling to do things right when trying to deliver both the highest risk-adjusted returns and alignment to net zero.

Challenges
It should be very clear that there are a number of large challenges confronting asset owners when implementing net-zero policies including these additional tasks adding to the already stretched asset owner governance budgets:

  • Identify and execute appropriate net-zero investment policies
  • Measure and report on the carbon journey through a plan
  • Maintain strong governance with robust continuity
  • Align with all regulatory requirements on climate
  • Manage the reputational risks arising from the public scrutiny of net-zero journeys.

But we should also recognise that there are investment and reputational risks from not committing to net zero.

The net-zero deliberations must weigh many uncertainties and complexities that make current decisions extremely hard to reach. In normal circumstances, the decision might more reasonably be taken when certain facts (investment, legal, political and science) have become clearer, but the current political agenda is pressing for an immediate decision.

There may be a silver lining to this cloud in that the trickle of early net-zero movers will trigger market interventions that may create disproportionate benefits. As the trickle turns into a cascade, more asset owners will move faster down de-carbonisation pathways and their actions will reduce the worry of failing unconventionally in isolation. This solidarity, across asset owners, in which shared interests and mutual dependence develop is the collective action we need and a case of the ends justifying means.

Road map
Having understood the challenges associated with a net-zero pledge and given serious thought to the beliefs and analysis required, a road map is necessary.

Starting with the objectives, asset owners will need to settle exact and multiple goals that are clearly drafted alongside the beliefs that support why they were chosen and how they will align with stakeholder expectations and fiduciary duty.

Then there is the carbon journey plan. There are the short-, medium- and long-term segments, in which the different sources of decarbonisation add up to the required trajectory.

Then there is the strategy. The chosen climate strategies should be categorised and described – both allocation and engagement; both decarbonisation and climate solutions. And the collaborations and delegations in the road map should be outlined with the necessary resourcing.

One point of emphasis is that the increased public disclosures of such investment plans and policies make much wider scrutiny inevitable. This reinforces the need for particularly clear beliefs and principles given that the justification of investment policies by reference to past performance in climate risk scenarios is not possible.

This road map must allow for much to change and so needs to be adaptive; which is easier done when constructed with maximum transparency, authenticity and competency. This is a big test of technical proficiency and cultural mettle.

We note how large funds play a special part in the net-zero transition under universal ownership* principles. Their capacity to play a proportionately larger part in addressing climate change comes from applying their weight alongside others in alliances that recognise their dependency on market beta combined with the leverage of collective action to build better beta.

These asset owners can currently enter net-zero commitments with solid financial arguments and use a supporting tailwind; but they no doubt will have to deal with tougher battles at various moments in the future. Under current fiduciary duty any concessions must fall on the climate ambition, not the risk-adjusted return but there may be a window of opportunity for them to lead change on this emphasis.

Fiduciary duty
This brings me to a personal view that fiduciary duty should be adjusted to provide better guardrails within which asset owners can operate. It seems that fiduciary duty, with its current high bar in financial primacy and poor air-cover for trustees, is fast becoming an anachronism in a world now focused on sustainability and wider responsibility.

Fiduciary duty varies by jurisdiction but using the UK’s fairly typical pension system as an example, there appears to be a fundamental disconnect between the government’s legal net-zero obligations and asset owners’ ability to help fulfil these. In order to be fit-for-purpose fiduciary duty probably requires a statutory override that accommodates net-zero commitments. This form of guardrail could help asset owners avoid the prisoners’ dilemma, of acting singly and selfishly, and instead act collectively and with solidarity as a better path for all.

It seems that only through collective action, and doing what we can with what we’ve got, that the investment industry can step up and avoid potentially irreversible damage occurring to our most important systems. Regulators will have a say in how influential asset owners become but whatever comes asset owners will play a substantial part. Out of great power comes great responsibility.

Roger Urwin is co-founder of the Thinking Ahead Institute

 

*Universal ownership combines the large-fund mindset of seeing themselves as long-term owners of a slice of everything – the world economy and market and its implied dependency on the market beta; with the large-fund strategy of leveraging collective action to build better beta to address systemic risk through active ownership, systemic engagement and allocations to more sustainable betas. ‘For universal owners, overall economic performance will influence the future value of their portfolios more than the performance of individual companies or sectors’. (Urwin | Universal Owners | Rotman Journal of Pensions Management 2011)

 

Global investors have overwhelmingly urged the SEC to provide corporate disclosure rules on climate. In submissions to the SEC many investors including CalPERS and CalSTRS said the rules should be mandatory.

“At this point, it is clear that the Commission must develop mandatory disclosure rules with line-item reporting which provide issuers with clarity on what is expected by investors on climate risk reporting,” said Marcie Frost, chief executive of CalPERS in its submission.

“For investors navigating the complexity of climate change, it is essential to have detailed scenario-based corporate disclosures regarding the potential impact of both the transition and physical risks to companies’ performance across time to help investors properly evaluate potential return on investment and to make informed comparisons among investment opportunities.”

In its submission CalSTRS called on the SEC to use rulemaking to mandate universal metrics and recognise independent standards to guide industry-specific disclosures and require that from companies of all sizes in all industries.

A study of 2,585 companies by Harvard Business School found that fewer than 20 per cent disclosed all of the data-points considered necessary for environmental impact valuation, making it unreliable for investors to use and adding weight to the argument that voluntary environmental disclosure does not provide sufficient data to evaluate corporate environmental impact.

In March this year acting chair of the SEC Allison Lee, asked staff to evaluate its disclosure rules “with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change”. Many investors have made submissions including CalPERS, CalSTRS, Norges Bank, CPP Investments, Harvard Management Company, San Francisco City and County Employees Retirement System, Colorado PERA, and NYCERS.

CalPERS’ Frost called on the SEC to act quickly saying the current disclosure regime for corporate reporting “falls short of our expectations as investors”.

“For investors, for capital formation and in the public interest, the Commission needs to move swiftly and decisively to provide the rules which will ensure the management and mitigation of a systemic risk,” she said.

The $1.29 trillion Norwegian Sovereign Wealth fund, managed by Norges Bank, owns 1.5 per cent of the world’s listed companies, this includes $399.5 billion invested in listed US equities and $139.9 billion in fixed income in the US.

In its submission Norges Bank said that the scope and quality of disclosure varies enormously. In the US companies provide better disclosures on their approach to climate risk management than on governance, strategy, and climate-related metrics and targets.

“We have assessed companies’ reporting on climate change since 2010. Although an increasing number of companies globally report some climate-related information, the scope and quality of disclosures varies significantly. The data published by companies is often incomplete and/or not comparable,” it said. “Based on our assessments, US companies in the technology, telecommunications and retail sectors have stronger climate-related disclosures compared to firms in the automotive, banking, basic resources, construction, insurance, and oil and gas sectors.”

In Norges’ disclosure assessments 80 per cent of the US companies reported their operational carbon footprint, but less than half of the companies reported emissions related to their value chains.

Investors unanimously said that for sustainability information to support investment decisions, risk management processes and ownership activities it must be consistent and comparable across companies and over time.

Kate Murtagh, chief compliance officer and managing director for sustainable investing at HMC said the current voluntary disclosures are not of a scope, breadth, and quality sufficient for market participants and regulators to fully understand and assess relevant climate risks.

“Since undertaking our net-zero commitment, our focus has been on improving our access to reliable, actionable climate-related data. Such data is currently very limited. Much of the available data is self-reported and unaudited,” she said.

In their submissions investors said they expected companies to disclose their climate plans and to set short-, medium- and long-term emission reduction targets that take into account the goals of the Paris Agreement. This allows investors to assess companies’ readiness for the climate transition. Investors also called for scenario analysis and for companies to assess the sensitivity and resilience of their long-term profitability to different transition and physical climate scenarios.

CPP Investments said that it expects companies to disclose financially relevant, potentially material climate change related factors in order to make informed decisions.

“Climate change remains one of the largest and most challenging investment considerations of our time. Specifically addressing its impacts in our investment activities better positions us to make more informed long-term decisions with regard to profitability and shareholder value, in line with our legislative mandate of maximizing returns without undue risk of loss. We require consistent, comparable and accurate information on climate change-related risks and opportunities that is ultimately decision useful. As such, we expect disclosure of financially relevant, potentially material climate change related factors from our portfolio companies to allow us to better understand, evaluate and assess potential risk and opportunities of these factors on a company’s performance.”

No need to reinvent the wheel

CPP said that when issuers seek input, it indicates its preference for companies to align their reporting with the Value Reporting Foundation (the successor to SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).

These two third-party standard setters were preferred by all investors in their submissions, with a directive from Harvard’s Murtagh for the SEC to not “reinvent the wheel”.

“The Value Reporting Foundation and the TCFD have an important, and necessary, continuing role to play in helping fill in the white space of principles-based climate disclosure rules. The SEC should not reinvent the wheel where an existing voluntary standard or framework already is aligned with the SEC’s mandate,” she said.

Similarly Norges said: “We recommend that companies report financially material sustainability information following the logic of the TCFD and using the SASB industry-specific standards. The Commission could ask companies to use these existing standards for their reporting. Finally, as a global investor, we welcome the ongoing cooperation among regulators and the work of international standard-setters, to ensure comparability of sustainability disclosures at an international level.”

CalPERS also called for the SEC to examine human capital disclosures as part of its work to modernise corporate reporting.

“We are delighted to support the Commission’s work to modernize corporate reporting which should include moving the market forward with respect to human capital disclosures including a substantially greater focus on diversity and the addition of certain identified metrics. Comprehensive, high-quality, consistent, and comparable disclosures of climate risk, charitable and political expenditures, human capital management, and board diversity are critical to the long-term success of capital markets.”