Endless churn of ESG data piles on pressure but is valuable

Demands have increased and don't look like abating but each survey is a learning opportunity

“I work in sustainability because I love filling in forms” said no one, ever. Yet, as anyone working in the area of sustainability is all too aware, we’re increasingly under pressure to publish volumes of data at the moment, whether that’s investors filling in ESG fund assessments or companies evaluating carbon risk for their Taskforce for Climate-related Financial Disclosure reports.

It can be hard to see the benefits of this endless churn of data production, but realistically these demands are unlikely to quieten down any time soon. So, downsides and drawbacks notwithstanding, I’ve been trying to take a more philosophical view, and remind myself of the fundamentals of why we need this data and the benefits that more comprehensive disclosure can bring.

Sustainable investing remains an emerging industry and one that needs to replicate the same internal analytical tools and external communications mechanisms as its mainstream counterparts.

Hence the mushrooming of research providers, fund rankings and so on that mirror the rest of the investment industry. This cacophony of data can seem overwhelming – both to produce and to consume – but it’s an inevitable part of the process of mainstreaming ESG considerations into corporate and investor mindsets.

In addition, no one is entirely clear yet on what ESG data matters most, or if causal links can be made between, say, corporate culture and financial performance. So, while the data requests can seem unnecessarily detailed, they may prove valuable in time.  

Some would argue that this surging demand for data is also driven by the need to address greenwashing, which has been present for too long in too many sectors. Increased transparency reduces the ability for companies and investors to shout about their good performance while keeping quiet about the rest. That can only be a good thing.

If we’re honest, another key benefit to investors of the increasing number of surveys is that the very process of providing information for, say, PRI submissions or fund rating assessments is a good learning opportunity. Each survey represents an ambitious set of expectations from expert stakeholders. Done well, these questionnaires can provide investors with a roadmap for incremental progress: the gaps in this year’s submission can be turned into priorities for the near future.

Looking ahead, it’s likely that there will be some consolidation of data surveys – for companies at least – in the near term, through the International Sustainability Standards Board (ISSB). The ISSB has been working for a number of years globally to bring together various corporate ESG reporting initiatives. It’s an important step forward and all involved should be applauded for their efforts to date. 

However, it’s equally likely that other requests will emerge, be that Sustainable Disclosure Requirements for asset managers, or green and social taxonomies for companies.

We are entering a new era of transparency, where collating and publishing more detailed and varied ESG data is becoming the norm for both companies and investment managers.

Inevitably this has implications for smaller firms, which will require a judicious process of honing in on the most material assessments. This is easier said than done, of course, but the alternative is for firms to opt out of this merry-go-round of data production altogether. The risk then is that third-party service providers will fill the void, by using estimated data or basing their fund ratings solely on publicly available information. Neither will provide an accurate picture; it is far better for companies to take ownership of their data and its contextual narrative.

One final, exciting point to note here is that the advances in tech and AI will mean that ESG data will be collected and analysed in ways that we can only imagine today. It will bring us new insights about the links between ESG performance and financial returns. It will help investors and consumers pinpoint companies with the best sustainability credentials. Clearly, the potential here is huge but it requires us all to do the legwork to get there.

The data demands on sustainability professionals have increased of late and they don’t look like abating just yet. There’s no denying this places significant resource demands across companies and investors alike but there are upsides too, both in our immediate roles, but that should also benefit the broader industry too over a longer timeframe.