Disclosures are a “blunt but powerful weapon” to improve environmental sustainability, the chair of the Asset Owners Network of charity Accounting for Sustainability has said, as reporting requirements have ramped up across the investment chain.

Russell Picot, who also chairs the HSBC (UK) Bank Pension Trust and is deputy chair of the Universities Superannuation Scheme, made the remarks during a webinar on Wednesday, hosted by A4S. Speaking about how the approach to environmental issues has evolved over the past 20 years, he pointed to reporting as a driver of change.

“Twenty years ago, corporate reporting was very plain vanilla,” said Picot. Sustainability reports were seen as separate from financial reporting.

“If you think about reporting today, it’s completely transformed,” he argued. A4S has had a big role to play in this, even paving the way for the reporting recommendations of the Taskforce on Climate-related Financial Disclosures, he said.

Stressing that the key is not reporting but thinking, he acknowledged that disclosure is a “blunt but powerful weapon”.

“If you ask companies to report on something, it will typically go on the board agenda,” he said.

A4S is keen to improve disclosures further; in January, together with the Church of England Pensions Board and Railpen, it launched a Sustainability Principles Charter for greater transparency, reporting and engagement around sustainability in the bulk annuity process. 

Sustainability reporting requirements have increased substantially for corporations and investors. Pension funds need to produce implementation statements, while authorised schemes and those with assets of more than £1bn must also publish a TCFD report. The new General Code requires policy documents to be updated in some cases, having a greater focus on environmental, social and governance matters alongside stewardship. 

Given the time companies and investors now spend on disclosures, information providers have started to automate some reporting, including Nasdaq. Sarah Youngwood, chief financial officer of stock exchange Nasdaq, sees a big role for generative AI in this.

“GenAI has a huge role to play. You want to take the data as it is and then put it in the right ‘boxes’, the right reports, so it is correctly and accurately delivered [in line with] the expectations of regulators,” she said speaking at the same webinar. “That's a perfect job for GenAI, which likes to look at unstructucted data and structure it.”

Technology can accelerate humans and improve output quality, Youngwood said, but she does not see it replacing them. “At Nasdaq there are plenty of people who read the sustainability report, and make sure everything is captured that we want to deliver. No technology will do that,” she said.

Investors care about the information that companies disclose, Youngwood said. Companies therefore need to care about it as well. Nasdaq provides a tool that lets firms see how their reports compare with those of their peers, to help them understand how investors will view companies in the sector.

Comparison across and within sectors will evolve, agreed Picot: “Investors will take transition plans and cross-check them, particularly with the use of unproven technology to demonstrate that their net zero targets are going to be met.”

With decision-making increasingly reliant on disclosures and companies largely self-reporting, regulators are sharpening their focus on external assurance of the statements made.

Picot said external assurance is important but believes that “we are very much at the foothill” of this.

One of his schemes has been “trialling something for a couple of years”, he noted, adding: “It’s quite slow progress I would say, but I think the essential ticking... of the numbers is important.”

There are limits to external assurance, he argued, for example on transition plans.

“You could get limited assurance on a transition plan, someone could check the numbers are consistent etc but the judgment around whether a transition plan is a good transition plan, and is it fit for purpose, I don’t think external assurance will provide that,” Picot said. “I think that’s up to the investment community to challenge management over those plans.”
   

   

   

What is your view – is reporting a useful tool to effect change?