Navigating environmental, social, and governance (ESG) requirements can be a challenge. One of those challenges is the fact data and reporting standards aren’t very standard. So, how do you navigate these challenges? And who should you speak with for answers? Michael Taschner, Head of ESG Advisory, Executive Director, S&P Global Market Intelligence, spoke to colleagues from across S&P Global. His biggest advice was if you haven’t started on your ESG journey to start ASAP. Our panel discusses these topics in Part 4 of our webinar rewind series.
Q: How can companies optimize their ESG strategy, data collection, and interpretation?
Kevin Bourne, Managing Director, Head of Investment Research, S&P Global Sustainable1
First, look at what your peers are doing. As I’ve said before, companies are willing to work with each other on this subject. It is a shared problem.
So leverage peers, leverage other people you know in the industry who might have already been through this. Look at their work and ask yourself if you feel that you are at the same standard.
Secondly, look for systematic solutions. I think it’s tough to manage ESG and sustainability data on a multi-jurisdictional basis, on a multi-reporting level. Your reporting to a regulator might not be the same type of reporting you need to do to an investor, which might not be the same type of reporting you need to do to a client, but you might have to use the same data to do all of your reporting. Look for technology that is capable of operating across multiple frameworks.
Unless you are just working in one country with one client type, where you might be regulated every three years and you have some certainty, don’t plan for the minimum amount of reporting you have to do. Probably, plan for the maximum type of reporting and then assume that it might get even more complicated.
We’ve had voluntary standards [WC2] for the last ten years. We are now going through a transition in many countries where we are looking at not just voluntary reporting but mandatory reporting. For example, in June 2022, China released its mandatory reporting standards for ESG data. Before long, if you’re sourcing capabilities from China, for example, your suppliers will ask you for information about these things.
So, ask for help. Don’t worry about that. Everyone is prepared to help invest and I think you must consider using technology to manage this information. And you have to think about it, multi-framework, multi-jurisdiction. You simply cannot avoid those outcomes.
Megan Pillsbury, Vice President of Business Development for The Climate Service, S&P Global Sustainable1
Yes. I’m going to echo what Michael said and say get started. And I would like to frame it to get everybody’s mindset around the fact that this is coming. I’ve heard many prominent, influential organizations say that they anticipate that emissions reporting will be as standard as financial reporting ten years from now.
And climate change is also coming, right? We are in the fortunate position that our scientists have told us how it may play out and given us different scenarios that we can analyze.
If you had the opportunity to go back to, say, late 2018 and you knew a pandemic was coming, would you have done anything differently than what you actually did when you didn’t know? Everyone would. You would have planned. You would have done all kinds of risk mitigation. You would have set yourself up to be successful in that new environment ahead of time. You would have tried to stay on the front foot.
Climate change coming. We’ve got the warning, the data, the time to plan. So take advantage. Figure out where your risks are. Start planning for them. Because as they hit, you want to be prepared to turn those risks into opportunities for your business.
Additionally, I’d like to point out how financial reporting today is very quantitative. You have quantitative numbers with qualitative footnotes to help the consumers of those reports understand the whole picture.
The challenge with ESG today is that it’s primarily qualitative with quantitative information in the footnotes. And that, over time, will need to shift for it to become more comparable and more useful for investors. So I would encourage investors to champion how we can get the industries, companies, regulators, and everybody aligned towards a specific quantitative reporting infrastructure.
Kevin Bourne, Managing Director, Head of Investment Research, S&P Global Sustainable1
It’s a critical point and a challenge for the broader industry. The qualitative component of the additional comment that is added to normal financial accounts is extremely interesting because it allows analysts to interpret the numbers.
Because we are using qualitative commentary first in many circumstances, the analysts make decisions without numbers to compare and reference against. And therefore, some anomalies occur in the creation of ESG metrics from the vendors because they are having analysts analyze somebody’s thoughts and opinions.
I think this is a big issue with the way the schemas are created, being in the voluntary ones, and all the regulatory ones that the industry has to change. We need quantitative metrics with qualitative commentary; it works well for financial reporting, and that process needs to be extended into other ESG reporting and climate reporting. Otherwise, we’ll spend too long doing analysis where we don’t have time on our side.