ESG and Climate Reporting with Derivatives

At present, no clear guidance exists on the treatment of derivatives for ESG and climate reporting. Because investment managers face increasing pressure to disclose their portfolios’ sustainability attributes, should reporting include derivatives? And if so, what represents an appropriate framework for maximizing transparency?

Derivatives encompass a wide array of instruments. Their varying risk exposures can create complexity, and investors’ motives for using them can diverge considerably. A look-through approach can help us understand their nuances, allowing us to more accurately assess the underlying asset’s ESG and climate characteristics, by factoring in direct and indirect financing.

The different aggregation frameworks we propose aim to provide investors with clarity and meaningful insights as they navigate the complexities of derivatives within ESG and climate reporting.

Look-through approach to ESG and climate reporting for derivatives