Future of ESG Data Management for Businesses NYC, US Edition 2023 | Group Futurista | 5 July 2023 | Virtual

A revolting tide of regulation is encouraging pension funds and insurers to evaluate their Environmental, Social and Governance credentials, but this is often easier said than done. A crucial challenge is that regulatory ESG reporting is not uniform across the world and has a long way to go to match financial reporting. Environmental, Social and Governance data underpins the fast-evolving landscape of sustainable investment. It assists in guiding the allocation of trillions of dollars of ‘ESG aware’ investment capital. The forthcoming revolution in ESG data will be forward looking and tied to real-world impact, tracking towards science-based targets and an inclusive economy and testing if management is transition-ready. There are five probable enablers of the coming revolution in ESG data. First, machine learning and predictive ESG. Second, remote sensing and exogenous disclosure. Third, third party verification. Fourth, disaggregation by business unit and fifth, Open access. There is expanding information on environmental and social risks in company supply chains. The standard of data on governance indicators is improving as their scope widens. One of the threats is that ESG data puts a spotlight on what is available, rather than what is most important. For the moment, sustainability discussions focus on the need for transformation and unprecedented shifts in the way that companies operate. Today, ESG data is also better suited to highlight the worst performing companies. This circumstance has arisen because a common use of ESG data is ‘negative screening', excluding firms or entire sectors from investment portfolios, often on ethical or religious grounds. Moreover, ESG data should be focused on ‘the future we want’, to use the language of the UN Sustainable Development Goals. Evaluating whether a company is on a path that is consistent with our transition to a sustainable world is even more important than its current environmental and social impact. ESG data today provides only a limited window into real-world impact. Now, it is possible for a company to get strong ESG scores by incrementally improving environmental performance to a level at least as good as its peers. Such valuable steps forward can often be achieved without altering the company’s business model or product offering. So far, companies face much tougher environmental constraints and societal expectations that threaten their license to operate. Better data around setting and implementing ambitious targets is needed along with metrics to assess the capacity of the management team to implement profound changes to the business and enhance preparedness for future disruption.