Greening the investment landscape

There is no universally agreed definition of sustainability. Look under its umbrella and you’ll find an expanding array of acronyms, concepts, initiatives, regulations, frameworks and standards for sharing information, making disclosures or reporting on sustainability and environmental, social and governance (ESG) matters. But after holding various voluntary and professional roles in ESG and sustainability in and around financial services, Gillespie is in her comfort zone in that crowded, complex and confusing landscape.

Leveraging data

This is vital at Alter Domus. ‘Each client is different and so are their needs,’ says Gillespie. Some have an ESG team and/or head of sustainability. Some may be outsourcing sustainability-related processes such as data collection and management, ESG report preparation and writing, or the entire process from data collection to generating ESG reports. Some may want to delve into ESG-related risks and opportunities.

‘We are always looking at how we can best use the data points we have access to,’ says Gillespie.

Hard-pressed ESG managers can find themselves increasingly awash with data that is potentially ESG and sustainability-related. ‘It’s a vast subject and can seem overwhelming,’ says Gillespie.

Alter Domus already utilises automation to alleviate associated burdens and deliver benefits for clients. It recently partnered with Deloitte on a white paper exploring digitalisation in alternative investment, and the ways the industry is exploiting significant tech trends such as hyper-automation and artificial intelligence (AI).

Exploiting tech to leverage data more strategically, boost operational efficiency and evolve operating models can help businesses to address market complexities and convert them into opportunities. Take regulation around ESG and sustainability, which has grown exponentially over recent years.

‘If you can use AI to consider the materiality of what that means for an organisation or a portfolio, it can be a powerful tool,’ says Gillespie.

But this is just one of the ways that data can be powerful. ‘Part of what I get excited about is exploring how we can unlock value creation within businesses – helping clients to look at how they operate and how we can help them to do this differently in ways that deliver benefits that are not just financial,’ she says.

Sustainability lens

With one private equity (PE) client, for example, a sustainability lens was used to consider ways to create value within a portfolio company by looking at the ecosystem in which it operates. ‘We worked with them on their strategy,’ says Gillespie.

The PE company’s decision to look at the circular economy for a portfolio company was initially prompted by a sector-specific ESG regulation, but the exercise triggered conversations on wider considerations. After analysis revealed areas of wastage around raw materials used in production, ways to change these were identified that reduced waste and costs, and delivered other benefits.

‘Including sustainable practices within the business led to better products and started to attract interest from different markets,’ explains Gillespie.

Everything matters

‘The solutions we offer our clients have to be pragmatic,’ says Gillespie, even when change is prompted by a mandatory reporting requirement. ‘But when regulatory reporting gives you an opportunity to look at everything about a business through a fresh pair of eyes, the results can be quite interesting.’

This will be good news for businesses that are grappling with ever-changing options and requirements around best practice, elective, voluntary and mandatory ESG and sustainability reporting – and adapting to changing expectations.

The alternative investment industry already has some experience of this. The United Nations-supported Principles for Responsible Investment have provided a voluntary reporting framework since 2006, while provisions in the European Union (EU) Sustainable Finance Disclosure Regulation have imposed mandatory ESG disclosure obligations on asset managers and other market participants since 2023. But the speed and scope of recent and emerging changes around what’s required is unprecedented.

The bigger picture

‘Regulation around ESG and sustainability has grown exponentially over the past decade,’ says Gillespie, who is also a member of the ACCA Global Forum for Sustainability. ‘There will be more in the future and the regulatory environment is moving at a fast pace.’

During 2024, as companies inside and outside the EU were grappling with first-time application of the European Sustainability Reporting Standards required for compliance with the EU’s Corporate Sustainability Reporting Directive, the International Sustainability Standards Board’s (ISSB) global IFRS Sustainability Disclosure Standards (IFRS SDS) also came into effect.

‘I think we really needed those new global sustainability standards from the ISSB,’ says Gillespie, noting that IFRS SDS focus on disclosures for capital markets about sustainability-related risks and opportunities that could reasonably be expected to affect company financial prospects demonstrates how these risks and opportunities align. ‘I don’t think one should be at the detriment of the other.’

And those IFRS SDS might do for sustainability reporting what international accounting standards have done for financial reporting. ‘The ISSB standards aim to facilitate “apples-to-apples” comparisons by investors,’ says Gillespie.

Could they become a global baseline? Some jurisdictions are already using the ISSB’s IFRS SDS as the basis for national standards, as regulators, investors and other stakeholders push for sustainability disclosures and reporting that provide a consistent, comparable basis for evaluating performance across, geographies, industries and companies. Gillespie is a pragmatist, but she has her fingers crossed: ‘I’d like to see fewer frameworks and more action.’