From Best Execution:
A new Harvard Law School Forum on Corporate Governance report reiterates that environment, social and governance (ESG) integration can only be achieved with quality data and strong data management.
The report said, “Investors need to be able to assess the connection between difficult-to-value ESG elements and enterprise value.”
It added, this trend is driving a push for new types of information and data oas well as new ways of measuring corporate performance. These range from ESG-focused indexes to ratings and industry-focused disclosure frameworks and standards, and by reviewing corporate documentation.
It noted that “companies should evaluate seriously the internal systems and tools that are being used to collect, scrub, analyse, verify and report that data”.
The report also called for disclosures to be independently verified and audited to safeguard against data risks that could lead to greenwashing accusations.
“As the desire to allocate funds towards ESG investments rises, the information that underpins these ESG scores is being increasingly demanded by investors,” says Kifaya Belkaaloul, head of regulatory at NeoXam.
She adds, “However, it isn’t just for funds labelled as ‘ESG’ that investors want to know this kind of information, it is for all funds and assets in the same way that they demand information on financial performance.
The fact is, it is now seen as a fundamentally important information category, which can also be relevant to the broader mission statements of both asset managers and their clients. Ultimately, to succeed in this space, firms have to be able to harness the data that informs ESG ratings, and present it in a simple, clear way to investors and regulators alike.”
On the big picture front, the Harvard study said that sustainability factors provided an additional lens through which institutions have begun to make their business decisions.
“Given the fluid landscape and scope of issues, the ESG mandate can seem overwhelming,” the report stated.
“But overlaying all is an emerging recognition that ESG extends well beyond normal issues of compliance or corporate social responsibility — it is a core issue of business strategy that requires significant board and C-level engagement and robust internal controls appropriately scaled to address known and unknown risks.”