Engaging to Improve Climate Data in Private Markets

Following the publication of our Stewardship Code report, we’re sharing several stewardship stories – examples of the actions that we took over the course of 2022 to support our clients and help to improve outcomes. This blog focuses on our efforts to improve the disclosure of climate data by private-market managers.

We’ve identified ineffective measurement of climate data in private markets as a potential systemic risk. Change demands that organisations know where they’re starting from, so they can understand the actions they need to take. While listed entities have generally improved their climate-related disclosures over time, others are laggards. Across private-market assets, the lack of standardisation, along with the opacity of methodologies and sources used, hinders asset owners’ ability to act.

During 2022, we completed a research exercise exploring the availability and quality of climate data across four private-market asset classes, gathering information from a range of managers and funds. We used this research to both improve our understanding of the industry’s position and to establish the steps that asset managers needed to take. Three specific recommendations arose from this:

• Asset managers should continue to work with underlying investee entities to improve data availability.

We’ve both shared our research with managers and highlighted our findings to them during research meetings, requesting them to take steps to improve their data. We’ve also encouraged clients to raise questions on data quality.

• Asset owners should consider adopting a data quality/availability metric within their climate governance framework.

Adopting a data quality metric has been a core recommendation to our clients in their TCFD reporting. Setting out expectations for improvement and the timescales in which to achieve those improvements gives asset owners an objective with which they can directly engage.

• Asset owners, when selecting managers for new private-market mandates, should consider the use of minimum standards for climate data reporting to differentiate between providers.

The consideration of climate data quality and reporting is now included in our evaluation of managers, but asset owners should be prepared to use the sanction of capital (re)allocation if expectations aren’t being met. Knowing the importance of action on climate, including measurement, is a means to drive change.

We’re presently finalising our 2023 exercise to evaluate any improvements in data quality over the last 12 months. We know that change takes time, but we’re hopeful about the potential for progress. And we’ll continue to engage with managers to push for developments in this area.

Being better stewards

At Hymans Robertson, we encourage and challenge all our clients to be better stewards. We’re committed to improving stewardship and will report on our activity every year in accordance with the UK Stewardship Code principles. You can read our report for 2022 here.