The Capital Group's 2022 Global ESG study polling 1100 global investors contains a somewhat puzzling result for ESG investment implementation. At the bottom right corner of this infographic, investors were asked to rank their key challenges in implementing ESG investments. Not surprisingly, access to consistent ESG data ranked near the top of the pyramid. Much further down, at 9%, was transparency. The dichotomy of these responses led me to ask the following question:
If investors are truly concerned about accessing consistent ESG data, why does transparency lag as a key challenge for implementing ESG investments? Or better still, wouldn't it make sense to prioritize transparency when assessing ESG data for consistency over a certain time horizon?
One could argue that transparency should be the driving force and biggest challenge to accessing ANY ESG data that is consistent across all functional areas of the business. Otherwise, one risks a healthy dose of greenwashing, incomplete and inaccurate data that can undo any ESG investment strategy, regardless of access or measurement.
Eleni Polychroniadou, founder and CEO of Sintali, points to this very problem in a recent post on LinkedIn. What I appreciate about Eleni's post is how she pinpoints examples of greenwashing brought on by pressure to report on sustainability efforts. She posits three straightforward methods to tackle this conundrum enabling companies to set about creating a 'clean' mandate that avoids the type of scrutiny and bad press investors like to avoid.
If investors truly believe that accessing and measuring consistent ESG data is a challenge for a sustainable investment thesis, they need to understand and then demand the following actions:
- Get a full grasp of applicable ESG metrics, measurement protocols, and methodologies such as SASB and TCFD, and technology reporting platforms such as the Company Tracker Suite from World Wide Generation. Learn by doing.
- Perform the type of due diligence you would do if you were an early-stage investor. Talk to company personnel, leadership, and board members to gauge their understanding and commitment to sustainability reporting. If there are gaps in knowledge, data, reporting, or any other activity related to ESG reporting, find out why and ask what their intent is going forward to remedy the problem(s).
- Ensure that the fund or asset manager with whom you entrust your money is on the same page with you regarding your criteria for ESG investments. If they aren't sure, ask about their intent to fill in the gaps. You write the check; you should expect no less.
One can take many more actions to ensure better transparency and authenticity. It's a pathway to building the kind of trust that enables us to have a more efficient and productive ESG investment marketplace.