In this Green Dream episode, Maria Nazarova-Doyle, global head of sustainable investment at IFM Investors, discusses the firm’s first ‘one-stop shop’ annual sustainability report and predictions that artificial intelligence (AI) will help overcome the obstacles of reporting.
She also shares her thoughts on the differences in stewardship between public and private markets, why the investment industry must stop prioritising “quantity over quality” and instead direct more attention to real economy action.
Watch the full video interview above and read the transcript below.
HD: Hello. My name is Holly Downes, Reporter for PA Future, and welcome back to our Green Dream series. Today, I am joined by Maria Nazarova- Doyle, global head of sustainable investment at IFM Investors. Thank you for being here today.
MND: It’s a pleasure to be here.
HD: Of course. So, IFM just published its first sustainability report under a new approach. The report to combines the UK Stewardship Code and the TCFD reporting requirements. What is the current state of the reporting market and why is now the right time to alter your reporting methods?
MND: It’s an excellent question and excellent timing as well. To put it simply, there is just too much reporting. It’s too much reporting in the sense that there’s a lot that needs to be produced, read and consumed and analysed. I think the market is near saturation in reporting as there are so many pressures from lots of different directions.
But more so, we’re seeing pressures from regulation as well to do more reporting. But actually it shouldn’t be about more reporting or more data points. It should be about better quality, smarter reporting. It should be about information and data that is useful, timely, complete and as accurate as possible so that it’s actually helping everybody through the chain to do what they need to do.
So for us as an asset manager, our job is to help our clients to then produce their reports, but also assess how we are doing when we manage their money. There is a very important role of reporting in terms of transparency and accountability. But there is just too much of it. We’ve gone for quantity over quality. So we’ve tried to manage that by overhauling our reporting process.
HD: Amazing. And could you tell me a bit more about the report and what impact you hope to have on the way that the firm operates and how other firms report?
MND: For us, the impact is immediately visible. This is because the less time we spend on reporting, the more time we actually spend managing the assets and doing the stewardship of our assets.
Stewardship is quite unique and different from public markets and private markets. When you own a company, you own a significant chunk of that company. This means you can nominate board directors, operational directors, and can send people in on secondment into that company to help develop transition plan and data systems in your reporting. So, you actually roll up your sleeves and work essentially in the real economy, making that sustainability integration real. This happens on the ground. So it’s very important to have more time to do that because you have tangible impacts and real world outcomes.
The less time we spent on reporting, the more time we actually can focus on the real economy action. This is very valuable. What we’re also seeing is that there’s a lot of interest in our approach because everybody’s grappling with the same thing. It’s a market wide issue. Responsible investment team are overwhelmed with reporting, and they’re seeing more and more of their time being spent reporting on activities but not doing these activities.
It is a bit of a Catch-22. The more time the spent on reports and the less they have to report on. We’ve seen a lot of interest in our approach. I’ve had several market participants reach out to me to talk about why we did it, how we did it, and if there are any pitfalls to see what they can learn from it. But, at the same time, our clients seem to be very happy with the approach that we’ve taken. They do prefer the one-stop shop. As I said, there’s a lot to read and a lot information to take in. So, having one report where everything is in one place makes it easier to consume and understand.
HD: What are the main challenges that investors face when reporting, and how does this one-stop shop make it easier for firms to report?
MND: The main challenges are time and cost. The more reports you produce, the more costly they are, not just by the time it takes for people to work on it, but the legal reviews and auditing.
All of these have mounting costs, especially if you have many different reports. For example, if you’re an asset owner and have to manage lots of asset managers, you need to understand what they’re doing and keep an eye on them through the reporting process. But these asset managers also produce multiple reports as well, and it becomes impossible to consolidate and keep track.
But also, another important point we found when consolidating all these different themes into one is that it helps us think more holistically about our approach. It actually makes us think about our sustainability strategy rather specifically on climate or social factors. So, now many market participants are producing separate a safety report and into energy report.
This encourages teams to think in silos. Teams are now thinking about how to report holistically on all activities in one place so that it makes sense to consumers of this information. This allows them to think about their overall strategy and approach. This is also a benefit and it is a recognised problem in the market. We have the stewardship code review by the Financial Reporting Council. They are trying to reduce the burden on asset owners and asset managers and other market participants in producing reports. We’re very happy to share with others what we’ve learnt from this process.
HD: Thank you. I’d like to also like to touch on another report IFM published in October in collaboration with pension schemes. The report – titled UK Energy Blueprint – looks at the potential impact pension capital could have on reaching net zero. Can you explain what role pension funds play in potentially mitigating system-level risks, such as climate change?
MND: Absolutely. We are very excited about this report. We collaborated with some really key Australian pension funds like Super Rest, Hesta and Sievers to create this landmark blueprint. This was recommended in the policy measures the labour government published to crowdsource that capital into the UK market.
There’s a lot of capital and pension funds, and that capital is long-term and sustainable by nature. But at the same time, it’s driven by fiduciary duty. The way to attract this pension capital is to use the right policy levers that we recommend in this report to make key investments into attractive to pension funds.
If we can do that, then we will be able to unlock the stream of capital support and the government’s net-zero strategy and clean power by 2030.
HD: And how do you see the reporting landscape develop in the next 5 to 10 years? Do you have any ambitions and predictions at all?
MND: Yes. There will be more reporting as more market introduce new regulations such as adopting ISB as a global baseline, and there will be more demands on reporting.
However, I do see the ISB adoption of that global baseline as a benefit because hopefully everybody will report on the same basis or nearly the same basis with minimal modifications. It is then easier for asset owners if anybody needs this information to analyse, interpret, and compare apples with apples. So, actually standardising the reporting market will really help.
But we will see continued depression. So again, thinking smartly about how can you combine things to try and minimise that burden so we get more sophisticated.
What I’m also seeing more is AI tools being used to produce, consume and analyse reports. Lots of asset managers use AI tools to consolidate the main points and compare and contrast the achievements when it comes to their sustainability reports. So we’ll definitely see that coming to the next 3 to 5 years.
HD: Thank you. And finally, we always have end our green dreams on this question. What is your favourite sustainable snack or drink?
MND: It’s a tough one. So, I would probably say a drink that my daughter calls homemade Ribena. My neighbour is a super talented gardener and grower – she grows absolutely anything and everything. We get a lot of organic fruits and berries from her. We love to combine blackberries and apples with a little bit of sugar, boiled for a couple of minutes to get the juices flowing, and then cool it down. It’s just so delicious. It’s locally grown and nothing can be more sustainable than that.
Also, although it’s not quite the sustainable drink, but, our firm is Australian, and this might surprise some of your audience when I say that, apparently, wine from Australia is more sustainable and has a lower carbon footprint than wine from Italy. It’s about on par with France. It’s all about how it gets shipped. So, if it’s by road from Italy, it’s either worse or the same, as by ship from Australia. So, you can drink Australian wine, and not feel too guilty about it.
HD: Lovely. Well, thank you for being here today, Maria, and thank you for asking my questions.
