How Unified Disclosures, Data Standardisation and Technology Can Unlock ESG’s Full Potential
Authored by – Daniel Percy-Hughes, Director – Business Consulting
Environment, Social and Governance (ESG) is an increasingly growing area of focus for leading financial services (FS) institutions. With the sentiment that green business equates to good business, and shifting priorities toward sustainability in a new generation of investors, clients, and employees driving, FS firms are looking to scale up their ESG offering and make credible ESG investments. While ESG engagement can help firms create value and provide transparency, the creation of unified global disclosures, data standardisation and the use of technology are essential to unlocking ESG’s full potential.
ESG factors are becoming integrated into investors’ investment decisions and part of the advice offered to them by providers of financial services, such as banks, asset managers or insurance companies. While longterm quantitative data exists, it is of variable quality. Accurate comparison on ESG-related projects is difficult with data that is not standardized and where norms and averages have changed over time. Disclosures could be a way to improve the quality of that data.
Financial services is a global industry and the environment and sustainability are global issues. As such, there should be global standards and measures in place that cover all global markets. According to the European Parliament, the current “disclosure requirements set out in European Union (EU) legislation do not envisage disclosing all of the information necessary to properly inform end-investors (citizens investing in bonds, pension funds, investment funds and other financial products), about the sustainability-related impact of their investments.” As a result, countries have created their own set of nonunified standards through a lens that favours commercial priority. This lack of disclosure benchmarks across member EU countries leads to inconsistent data and reporting that can lead investors astray when making financial and investment decisions. There is no basis of comparison available as each set of data standards and disclosures are different.