The Evolution of ESG Data

A surge of investors is increasingly opting for investments and transactions evaluated against ESG criteria. This is due to the consistent, and sometimes even higher, investment returns worldwide which bolsters the business case for ESG investing. However, to successfully allocate capital, investors need the ability to evaluate the relationship between challenging-to-assess ESG components and business value. This need is prompting the development of new kinds of information and data concerning these aspects. It also encourages novel methodologies to gauge corporate performance, such as ESG-focused indexes, ratings, industry-specific disclosure frameworks, and standards [3], along with the scrutiny of corporate documents.

The emergence of new regulations not only in US, or EU, but as well in UJK, Australia, and Singapore. emphasizes investors’ requirement for complete, comparable, and trustworthy ESG-related data and regulators' aim to assist them in procuring this information. Thus, both the market and the standard-setters are striving to guide investors in more closely examining how companies integrate their business objectives and strategic goals with environmental and human capital preservation, if at all.

The necessity for dependable information from regulators and stakeholders is also apparent in transactional circumstances with the increasing demand for enhanced due diligence. It is increasingly insufficient to only comprehend the legal disputes a company might encounter.

Companies are now expected to elaborate on their management strategies for their consolidated corporate groups, including ESG-related matters. Moreover, under certain circumstances and based on the transaction, they may need to be assessed and evaluated by technical experts who concentrate on ESG risk and value generation.

Key Points to Remember

In this scenario, it is essential for companies to begin assessing their ESG-related reporting with the same meticulousness applied to their financial reporting procedures. This includes ensuring consistency across all published materials.

Should a company’s ESG data initially come from a legacy Corporate Social Responsibility (CSR) Report or an infant ESG reporting process - that data is now being utilized in an offering document or regulatory filing, companies need to seriously assess the internal systems and tools used to gather, cleanse, analyze, verify, and report that data.

When necessary, companies should think about improving the dependability of information (for instance, greenhouse gas ("GHG") emissions data and other metrics and statistics) via external auditing or assurance.