Although not a new concept, Environmental, Social, and Governance (ESG) consideration has grown significantly in the last 10 years. Around 93% of the world’s largest companies (by revenue) now report on ESG performance, with ESG assets likely to exceed $50 trillion by 2025.
ESG investment options are becoming increasingly popular with younger generations. Investment organizations must consider the options they provide and where they fit within today’s cultural expectations and societal values. This is a response to Socially Responsible Investing (SRI). For instance, Gen Z is 80% more likely to ask about ESG options than Boomers.
So, what about the data?
Organizations use their data to ascertain their ESG rating. An ESG rating provider is a third-party vendor that will assess an organization’s rating. However, there is no universally agreed system to establish a rating, making it difficult to compare companies’ ESG practices and risks effectively. On this basis, companies can receive widely different ratings from two different rating providers. It’s realistic that if rating providers are relying on a company’s sustainability report to do their work, it could lack transparency and over-egg their sustainability effort, for example.
With recent ESG reporting requirements shifting to require much more information and detail, it looks like regulation could be right around the corner.
If we move closer to a universal ESG rating criterion, there are two clear benefits. Firstly, comparing ratings from different companies will become much more efficient and improve accuracy for investors. Secondly, each organization could have its own internal ESG function, removing the reliance on a third-parties. If held to a universal ESG rating standard, businesses could have their own data-driven ESG insights, improving the accuracy of ratings and adding a more competitive edge to the market.
Some organizations are already looking to build their own ESG data function. We’ve spoken with several businesses that are getting a head start. If this is on your radar, get in touch and see how we’re helping businesses prepare for the inevitable.
Ethan Simpkin
Ethan is a highly skilled consultant with us here at Orbition, specializing in data and analytics.
With a passion for technology and a natural talent for identifying top talent, he has become a valuable asset to both clients and candidates in the industry. Read more.
