The Challenge:
When does the gap between ESG policy intent and workplace practice lead to serious failure?
The US SEC (Securities and Exchange Commission) and the UK FCA (Financial Conduct Authority) are among regulators across the world that are increasingly concerned about ESG benchmark compilers. This is no surprise because of their critical role in shaping the investment landscape.
Regulators are on record of their intent to pay closer attention to ESG benchmark compilers to ensure that their ratings and methodologies are reliable, accurate, and unbiased, with this closer attention comes the implied significant risk of both fines and damage to individual careers. However, the modus operandi of using surveys and questionnaires for ESG benchmark compilers has several weaknesses that can affect the accuracy and reliability of the data collected. The weakness is the reliance upon corporate self-reported data, which may have incomplete and inaccurate assessments. This problem can be exasperated through low response rates, and time consuming and costly administration.
Bloomberg predict that ESG assets are set to reach over USD 50 trillion by 2025.
A corporate’s ESG policies directly affect data input to benchmark compilers and publicly available information.
ESG corporate policies define the rules, which often extend into other documents such as procedures. ESG methodologies are defined by the rules. When failure occurs, a common citation is that the rules were not easy to understand and were not accurately measured.
Any ESG policy that Is not effectively and efficiently measured is a risk. This occurs when there is reliance upon written rules for decision-making that lead to distortions, mistakes, and prejudices. The more a policy is treated subjectively the greater the risk.
ESG factors are important for corporate finances because they can have significant impacts on a firm’s reputation, operational efficiency, regulatory compliance, and access to capital, as well as its ability to manage long-term risks and create sustainable value for stakeholders.
The gap between policy intent and workplace practice is problematic for both corporates and ESG benchmark compilers. Both sides have a vested interest to address the gap. The time has come for new thinking to collect accurate and reliable data, which is more inexpensive, timely and scalable.
There is no doubt that when corporate financial failures occur, stakeholders and regulators will turn their attention to the accuracy of ESG reporting and benchmark compilers.
Go to Market
Df2020’s go to market strategy is via partnerships that wish to licence our cloud-enabled swarm intelligence platform with embedded methodologies.
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Contact
John Rawlings: jrawlings@df2020.com
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