East Capital Group is a global asset manager based in Sweden, with a strong footprint in emerging and frontier markets where they have been investing since 1997. Now in their sixth year of participating in CDP's Non-Disclosure Campaign (NDC), East Capital Group is motivated by a strong belief in the importance of reliable environmental data for investors, and the strength of collective action when requesting this data from companies. The NDC is one of the stewardship initiatives the asset manager joins annually, and the NDC’s scope and outcomes are reported internally and externally.
Risk management
Disclosure and data are integral to risk management. The group believes that any material risks that are not adequately disclosed or reported can create risks for their portfolios. Be it climate change, water security or deforestation, there is no one type of risk that trumps all. “Risks will also vary depending on the sectors and countries where our investees operate”, says Karine Hirn, Founding Partner and Group Chief Sustainability Officer at East Capital Group.
Discussing East Capital Group’s approach to risk management, Hirn says that “we rely primarily on our own research with fully integrated proprietary analytical tools”. She continues: “The extent of disclosure and the quality of environmental data are key to our stock allocation and risk management processes which aim at assessing the true value of our investments.” When assessing environmental risk, looking at whether a company discloses their climate, water or forests impacts through CDP is a useful starting point.
Delivering tangible outcomes
Over the six years that East Capital Group has participated in the NDC, the asset manager has seen an impressive 20% to 25% success rate when engaging with companies on the topic of environmental disclosure through the campaign. As part of the NDC, East Capital Group targets all holdings in their Global Emerging Markets Sustainable fund and all holdings deemed critical in any other funds.
From this approach, Hirn explains that “the response rate obviously varies but we have noticed that smaller firms, especially in Asia, tend to be more responsive than large incumbent firms; they are willing to learn about the platform”. CDP’s analysis of the results of the 2023 NDC also found that direct engagement from FIs was particularly impactful in Asia (excluding Japan) – companies based in the region were three times more likely to disclose when engaged by FIs through the campaign.
East Capital Group has found that companies are also more receptive when it is clear that the request for data comes directly from shareholders. Hirn adds: “We have noticed that we are often asked to confirm that we are shareholders, which is most likely key for the letter's recipient to pass it forward in the organization, be it the ESG department or executive management.”
Supporting companies on their disclosure journey
Naturally, not every engagement is successful and unresponsive companies are a challenge. East Capital Group has found that an organized and persistent approach can help mitigate this. “Sending out the NDC engagement letters as soon as possible and doing a follow-up one month later can be helpful”, says Hirn.
Another challenge East Capital Group has faced in their efforts to engage with companies is that some companies are hesitant to disclose, citing concerns that the disclosure platform may contain too many questions they are unable to answer. Some companies may also worry that their first disclosure will receive a “poor score”.
In these instances, establishing a dialogue and offering guidance is vital. Hirn explains that “encouraging [these companies] to reach out to the local CDP team and to see this exercise as an important meaningful one which is like the start of the journey has helped convincing some!”
East Capital Group also encourages portfolio holdings to follow the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations and adopt International Sustainability Standards Board (ISSB) standards in their disclosure and will, in the future, also encourage them to follow Taskforce on Nature-related Financial Disclosures (TNFD) recommendations, as the Swedish group was among the first wave of early adopters of the TNFD. In conclusion, Hirn explains that, ultimately, they “strive to explain that disclosure and reporting is crucial for a better assessment and management of risks internally; not just a box-ticking exercise to please external stakeholders”.
Learn more about CDP's Non-Disclosure Campaign including further case studies and financial institutions involved in the campaign.