While many companies voluntarily disclose environmental, social, and governance (ESG) data, there is a lack of reporting regulations to define the metrics employed. This can make it difficult to evaluate them – and the targets that companies are meant to be hitting – against peers. Increasing the availability of comparable and meaningful ESG information, or ‘democratising ESG data’, – is essential to assess whether companies’ sustainability strategies and initiatives are effective. It will also help investors make better-informed decisions about which companies to support.
The year ahead will see increased availability of freely accessible resources that will help us evaluate companies’ sustainability performance. A good example is the Transition Pathway Initiative (TPI), which provides assessments of companies’ transitions to net-zero. The TPI’s new Global Climate Transition Centre, set to open in 2022, will expand the number of companies assessed from 400 to 10,000, a 25-fold increase.
Regulation also has a role to play as it can ensure the process of reporting ESG data is simplified, streamlined, and standardised. For example, the EU introduced the Non-Financial Reporting Directive in 2014, requiring around 6,000 large companies to publish standardised reports on the ESG policies they implement. In April 2021, the initiative was expanded to nearly 50,000 companies via the Corporate Sustainability Reporting Directive, with the first set of standards to be adopted by October 2022.