ESG Data Guide 2024

Seizing the opportunities in climate data

Environmental Finance: What challenges are your clients facing in addressing climate-related risks and opportunities?

Elena PhilipovaElena Philipova: The good news is that climate data is one of the more mature thematics within sustainable finance: data availability and understanding of what data needs to be measured, managed and reported has improved significantly. However, we’re far from having complete datasets.

We see a lot more data on Scope 1 and 2 emissions, and we have a lot more historical data too, so users of our data can backtest investment strategies and monitor performance over time. But we all know of the growing importance of Scope 3 emissions data, and the huge challenges companies face when measuring and reporting on it. Some of our recent research found that while 45% of large and medium-sized listed companies disclose Scope 3 data, less than half of them cover the most material categories for their sector. Disclosure rates also remain volatile, with over a third of disclosed values varying at least 50% year on year and half varying at least 20%.

EF: What can be done to improve climate data quality and coverage?

EP: The quality of climate investment strategies, and the models used by investors to manage climate-related risks, impacts and opportunities, depends on the quality of the reported data.

What we can do, as data providers, is ensure quality control and validate reported data, engage with companies, regulators and standard setters to accelerate interoperability and availability of climate data, and fill gaps with reliable estimated data. We as an industry need to be very careful when producing and using estimated data which can significantly deviate from actual figures, disincentivise companies to report and even increase the risk of greenwashing.

At LSEG, we believe that regulators and standard setters have an important role to play. We have called for the adoption of the International Sustainability Standards Board’s reporting standards, to create a common global baseline of high-quality data, minimising cross-jurisdictional information asymmetries.

EF: Where do you see opportunities in climate data?

EP: We see an overemphasis on managing climate risks, when actually the transition to net zero is creating huge opportunities across the economy. Climate data can be used to inform new differentiated investment strategies and alpha generating opportunities. Data sets like our Green Revenues model allow investors to see how companies are unlocking potential for their businesses.

More ESG data is also emerging as a result of regulation. For example, the EU Taxonomy requires companies to publish not only taxonomy-aligned revenues but also capex and opex. The combination of these inputs allows investors to project how much of a company’s revenue from the green economy is likely to grow over time.

The digitalisation of sustainability disclosures and climate reporting, meanwhile, will revolutionise the whole industry and bring it on par with more traditional financial datasets. Introducing digital tagging of ESG datawould dramatically improve its availability, quality and comparability, meaning that it could be processed and available to analysts within minutes of publication. That would allow the data to become a core mainstream input into investing and financing decision making.

EF: What is LSEG doing to help clients with their climate data needs?

EP: We’ve been supporting clients with ESG and climate data for more than 20 years. While many in the industry see the process of measuring and factoring in climate-related risks and opportunities as complicated, we believe the enabler to broad adoption is simplification.

As an example, we have close to 1,000 climate-related data points for companies in our coverage universe. There’s a sea of climate data. But when you think about assessing how the climate transition is impacting businesses and how to manage the risks and unlock the business opportunities, one can summarise the key factors across three dimensions: a company’s climate ambition, its management, and its actual emissions performance. Moreover, you really can have one data point for each dimension to provide an easy-to-understand and comparable way of measuring how well companies are preparing for the transition to a low-carbon economy. This allows us to structure the process and produce a meaningful and actionable data set to empower clients to act on climate opportunities with confidence.

This year we also launched the Sustainability Intelligence solution, which won ‘ESG data initiative of the year’ at Environmental Finance’s Sustainable Investment Awards 2024. It allows users to build and visualise a comprehensive view of Scope 1, 2 and 3 emissions, identify hotspots in their value chain and engage with high-emitting suppliers to gather more accurate data and support decarbonisation efforts.

This work is simplifying climate data in a way that helps businesses and investors act on the information available to them. The best way to help companies navigate the complexity of the climate transition and drive sustainable growth is to simplify the concepts and the data.

Elena Philipova is director of sustainable finance at LSEG based in Zurich, Switzerland