The Future of ESG Data
Economic, social and governance (ESG) is a framework that creates awareness, and prompt action, towards sustainable activities that give back to the wider community. Governments have now adopted the terminology. Using ESG as a means of monitoring and reporting the activities of companies in the private sector.
In a recent blog post, we explored how public awareness of the environment has completely transformed how businesses operate, and how there is a framework for organizations to identify, assess and ultimately enhance how they interact with society and the environment.
On paper, it is clear that ESG has prompted a change in thinking toward sustainable activities. Yet the conversion of ESG objectives into clear outcomes is yet to transpire. This is not something companies are facing but rather a reflection all sectors are facing when integrating ESG.
For example, a new report from EY was released looking primarily at ESG investments. Acknowledging that ESG has reached a critical cross-roads, EY argues that the success of ESG will be based on the transparency of ratings. This highlights that the lack of correlation has led to widespread disparity. Furthermore, the report also recommended initiatives to promote the understanding of sustainability, and also clarify the difference between financial risk and social impact.
Does ESG data need standardizing?
Looking at company actions, the challenge is for regulatory bodies who monitor ESG to see beyond policy rhetoric and understand the actions. In addition, they must uncover how this is practically impacting the surrounding environment.
A member of the European Commission’s advisory board recently called for regulators to ramp up pressure on ESG data providers. This is because without effective standardisation of data, regulatory measures on ESG reporting become nothing more than another tick-boxing exercise. As a consequence, compliance professionals would be responsible for reviewing endless reports with a variety of data points.
In addition, it is likely each claiming that the implemented methodology satisfies the stated requirements. This is not to downplay the innovations on display in the ESG analytics space. Rather, it highlights that without a standarised model, the efficiency and effectiveness of regulars is significantly limited.
Is Digitalization cause for concern?
Such concerns are not limited to ESG by all companies dealing with high volumes of data. Be it as a business or a sector, digital transformation has led to rapid creation, process and storing of data around the globe. Estimates suggest that we created, captured, copied and consumed 64.2 zettabytes of data globally in 2020. BY 2025, the estimates are that is will surpass 180 zettabytes. Data is key to the future of all organizations, and crucial to successful ESG monitoring.
ESG analytic startups are applying technology to address this problem, offering a benchmark from which to measure the performance of companies. Importantly, the processing of data is key to these solutions. In the near future we are likely to see startups through to large corporations using these data-led solutions. This will allow them to offer greater transparency to regulators while also allowing them to plan for a sustainable future. This is less a question of if, but when, as manual monitoring will not be able to process the sheer amount of data that will be created and processed in the coming years.