Insufficient data on sustainable development-related issues and poor data usability are severely hampering the growth of sustainable finance. Investors need data and information for their analyses and decisions on capital allocation. Financial reporting standards have allowed companies to speak the same language in measuring financial performance. There is a need for similar frameworks and common metrics for environmental and social impact disclosure. Transparent and readable metrics will help inform investor decision-making.
As of now, corporate sustainability reports are difficult to compare and the hundreds of Environmental, Social and Governance (ESG) data points per company are overwhelming, sometimes meaningless and often behind paywalls. Without high-quality ESG data, sustainable finance cannot become mainstream, nor can investors accurately evaluate the sustainability impacts of their investments. While there are multiple data sources providing some variant on ESG data, there are far fewer sources of impact data enabling the measurement of the positive or negative impact that investments are having in relation to their stated ambition, be that on the economy or target populations or groups.
The largely voluntary nature of sustainability reporting is also problematic as companies can choose to report only positive results and avoid communicating negative impacts. This creates issues in terms of data availability, quality, consistency, and comparability. Without third-party verification, end-users will also not have confidence that the data is reliable and accurate.
GISD members are working on these issues and call for making sustainability reporting mandatory for financial and non-financial institutions. They are advocating for disclosure requirements to be globally harmonized and extend beyond climate metrics to include material SDG-related information and forward-looking data. These requirements should apply to companies of certain minimum sizes, both listed and unlisted, and take sector and business activities into consideration. Reporting requirements should include sector-specific components while also containing sector independent factors consistent for all firms.