Issuers, asset managers and investors are under mounting pressure to report how their investments comply with a range of environmental, social and governance (ESG) criteria.
The principal difficulty they face is obtaining data reliable and comparable enough to make meaningful judgments about the companies and the securities they issue. Nobody understands that challenge better than Tim Mohin, now Executive Vice President and Chief Sustainability Officer at Persefoni, a company founded to help companies and their investors track ESG performance, but previously CEO of the Global Reporting Initiative (GRI), the world’s largest ESG reporting standard. He spoke to Future of Finance co-founder Dominic Hobson.
Questions being asked
1. Every company publishes an ESG report. How much of these reports is data and how much is PR?
2. Every fund manager now has a ESG fund. How many are doing the job properly and how many are “greenwash”?
3. There are multiple sources of ESG data from multiple vendors with different methodologies and even different scoring of the same company. How can investors distinguish the reliable from the unreliable?
4. Is ESG self-certification by companies value-less?
5. How reliable are third party data verification agents (i. e. auditing firms) – do they suffer from the familiar conflict between the audit contract and the consulting revenue?
6. What is the current state of play in ESG disclosure standards in Europe, the Americas and Asia*? [In addition to the GRI that you headed, I have counted eight other initiatives on disclosure standards – what’s an investor (or issuer) to do.
7. What needs standardisation – is it disclosure, data collection (e. g. questionnaires used by fund managers), scoring methods, metrics, reporting, or what?
8. We see securities regulators moving into this field – the International Organization of Securities Commissions (IOSCO) is encouraging securities regulators such as the European Securities and Markets Authority (ESMA) and the SEC in the US to regulate ESG ratings. Is that helpful – it’s not as if the bond ratings agencies covered themselves in glory in the run-up to the Great Financial Crisis?
9. Is the International Financial Reporting Standards (IFRS) Foundation plan for standardised global ESG disclosure regime. Is that realistic (given the number of standards available) or (b) desirable (can competition between methodologies lead to improvement)?
10. How useful is the ESG data currently available in helping investors assess different asset classes?
11. How useful is the ESG data currently available in helping investors assess different types of company (e. g. banks represent a different ESG risks from mining companies)?
12. What impact are artificial intelligence (AI) and machine learning (ML) having on improving the quality and availability of ESG data?
13. Are there any reliable methodologies for scoring the ESG performance of companies?
14. Each investor will have different ESG criteria. How easy it for them to bespoke their ESG investments to their criteria?
15. Does investor activism improve the ESG performance of companies?
16. How should funds reconcile ESG obligations with their fiduciary duty to beneficiaries?
17. We are told that ESG does not damage investment performance. If the data is unreliable, how do we know that?
18. If you are an investor, are there enough ESG-compliant assets to go round?
19. Are regulators obliging companies to disclose the “right” (i. e. meaningful) information?
20. Is the cost burden laid on companies to complete ESG reporting best defended as a tax or a repayment of a social cost or something else?
21. The “E,” the “S” and the “G” of ESG measure different things, such as CO2 emissions, forced labour, gender diversity, boardroom diversity, executive pay, anti-corruption and shareholder engagement. Since you cannot compare or offset gender diversity with CO2 emissions, it is counter-intuitive to award issuers a single ESG rating. Should “E” and “S” and “G” be split into three separate issues?