Despite the ESG backlash, the hunt for material ESG data continues. Peter Cripps reports
Environmental Finance’s Sustainability Data America conference was convened at a difficult time for sustainable investing in the US.
The ESG backlash, which has its epicentre in the US, coupled with the government pulling out of the US Paris climate agreement has made many firms reluctant to talk about their sustainability-related efforts.
But despite the bleak backdrop, the event highlighted that many companies and investors continue to see ESG data as relevant and material to their operations.
The conference in New York, which was held under Chatham House rules to encourage frank discussion, heard strong arguments for ESG investing.
An analyst produced evidence that ESG investments have outperformed their mainstream benchmarks over a number of years.
And one investor argued that incorporating ESG, when focused on materiality, is firmly within an investor’s fiduciary duty.
The conference explored the topic of which ESG data is ‘material’ to companies and to investment decision making.
It was argued that the ESG backlash puts the US in a good position to have this conversation – whereas a raft of regulations are driving the market in Europe, in the US the regulatory burden is much lighter. For example, the conference heard that the SEC’s plans to beef up climate disclosure requirements were effectively “dead”.
This frees-up the US to have a market-led conversation about which data is material, and this discussion could be fruitful.
Some participants went so far as to welcome the ESG backlash, because the difficult conversations it is triggering will make ESG investing – and the data on which it relies – more robust.
One corporate called for “no more bullshitting”, and for honest conversations.
And one investor said ESG “needs to go on a diet”.
Another investor said ESG data needs to firmly focus on risk, opportunity or satisfying another stakeholder's need, such as if an investor has ethical considerations.
At a time when the mood music from the US is bleak, every session at the conference heard examples of progress being made in the evolution of ESG data.
A private markets-focused panel heard about the drive to collect data across the sector and to standardise metrics, with one speaker claiming: “We are at the early stages of a total revolution in sustainability data”.
A panel on corporates heard that some companies are ramping up their sustainability reporting, despite the ESG backlash. This was partly because of the EU’s Corporate Sustainability Reporting Directive (CSRD), which will cover large US corporates operating in the EU. But California climate reporting regulations as well as those from other states will also drive disclosure.
Assurance of sustainability data is also growing, and this will be key to driving credibility in the industry.
Companies called for greater harmonisation of standards to ease the reporting burden. The International Sustainability Standards Board standards, which were set up to act as a global baseline standard, are also rapidly gaining traction – having been adopted by more than 30 jurisdictions.
The conference heard about the growing need for physical risk data, and that data on floods and other natural catastrophes is becoming increasingly sophisticated and accurate.
Investors called for more forward-looking climate data to help assess physical and transition risks.
Biodiversity data is also in strong demand. The conference heard about a US investor pressing big US companies to report on their nature impacts and dependencies.
Artificial intelligence (AI) is being increasingly adopted by US companies and investors to help their sustainability reporting and investment efforts, and has the potential to be particularly useful in reporting nature data.
And one investor said they are still asking for data on diversity, equity and inclusion, despite many companies rowing back on their targets in this area. Another said they want better data to help judge alignment with the UN’s Sustainable Development Goals.
Overall, the conference conveyed a sense that the hunt for high-quality ESG data remains important in the US, even if many are reticent to talk about it.