Challenges identified over private market data availability for TCFD reporting

Producing Task Force on Climate-related Financial Disclosure (TCFD) reports can be a “challenging” process, partly due to the lack of data availability on certain private market assets, according to Universities Superannuation Scheme (USS) head of responsible investment, David Russell.

Speaking at the PLSA ESG Conference 2021, Russell noted that the USS has produced two TCFD reports so far, and described it as an “interesting and challenging process”.

From 1 October, all authorised master trusts and schemes with £5bn or more in assets will be required to report on the climate risks affecting their investments under a phased approach, with smaller schemes following suit as soon as 2024.

“It’s quite a detailed thing to go through,” Russell stated. “Even some of the simpler things, such as carbon footprinting.

“We tried whole-scheme carbon footprinting in 2016 and we could do the public equity portfolio and half the credit portfolio, because the data providers tend to cover publicly-listed equity companies.

“But when you have private credit, which is half the benchmark for the credit portfolio, then that wasn’t really covered.”

He added that, within private markets, it was “relatively easy” to obtain the relevant data on direct assets, but for private equity and private debt the data was “absent”.

“It’s getting better, the processes to estimate that footprinting data that is part of the reporting requirement under TCFD and the Department for Work and Pensions (DWP), but it is still going to be a lot of estimated data,” Russell added.

“And that’s important, because that is what you set your base targets from.”

Russell also pointed to the issue of sovereign debt, noting that finding out what carbon exposure of the scheme’s gilt portfolio as part of the risk management process “still requires a lot of work”.

“I’m absolutely supportive of the TCFD, its approach and the framework it has for managing and reporting climate risk, but it is not without its challenges,” he concluded.

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