The $40 trillion global environmental, social and governance industry is built on a bedrock of data. As the South African financial market’s attentions increasingly focus on corporate sustainability, so too do company declarations of their Economic, Social and Governance (ESG) data, along with ESG rating agencies who evaluate their performances.
Companies that measure and rate ESG performance use a range of methodologies and data, including aggregate E, S and G scores, for instance, which can produce conflicting results with a company’s self-analysis. While lack of correlation is not uncommon, rating discrepancies are known to have consequences that affect a business’ opportunities for investment retention, new financial backings and growth opportunities. After all, inconsistency is more notable than one may think, especially when money is at stake.
ESG data is often wide and disperse, even in smaller-sized companies, particularly when an organisation’s overall performance metrics are derived from disparate ESG reports. This includes those from multiple sources and locations whose information gathering, records and systems prove idiosyncratic or dissimilar. As a consequence, data gaps will manifest, ultimately presenting a challenge for gathering meaningful ESG insights.
The issue for investors today is how to know which firms are good ESG performers and which are not. With cash flowing increasingly into ESG-related investment, investors have begun to request access to the raw data underpinning these ratings.
To mitigate the challenge of data inconsistencies or the appearance of greenwashing, migrating and organising raw data into a singular, digital ecosystem with strong analytical capabilities, that can scale and govern data lineage appropriately, is the go-to solution for modern businesses whose eyes are fixed on the investment opportunity prize.
Addressing Data Gaps with ESGCloud
• Standardised reporting = quality ESG data
Lack of standardised reporting creates inconsistent data and complex communications, all of which result in a chaotic data system. Consequently, data gaps arise that could lead to false-positive or negative conclusions. ESGCloud software allows for the leveraging of pre-configured templates to ensure all your ESG reporting requirements are met, and are accurate. A digital, centrally located system translates to all data capturers working off the same set of requirements. It brings consistency to ESG data reports by forming a central point through which your data is gathered, allowing you to aggregate data from multiple levels with surety.
• Accountability mitigates inconsistency
ESG ratings data can be deficient due to a lack of dependence on self-reporting, particularly when ESG authors fail to provide all critical data accurately and expeditiously. Bigger challenges present themselves when that data is mined from multiple locations that follow inconsistent reporting methodologies. ESGCloud enables data to be collected in a singular format and managed across multiple locations to track risk and value creation. It ensures that report authors can be identifies, and evidence of their inconsistencies shown, resulting in greater accountability over errors and opportunities to resolve data gaps in present-day, and the future.
• Separate the Noise from the Data
Data is usually associated with the 3Vs; volume, velocity and variety, which while crucial for data collection, results in data often containing a large amount of noise, especially when aggregated across fragmented operations. Separating that noise from meaningful insights is imperative for the construction of a truly sustainable portfolio. It extracts that which is pertinent from that which is not. ESGCloud simplifies that filtration process as it can help to derive critical insights with less insignificant information, thus placing companies’ data in stronger competitive positions.
• Align with International Frameworks
The non-financial reporting landscape is constantly evolving. ESGCloud enables the collection and analysis of data from global locations, providing a consistent source of ESG truth from where disclosures where international frameworks can be made.
The key to bridging data gaps in ESG reporting is to break down data silos and accelerate the flow of high-quality data by modernising ESG data foundations, particularly through our cloud-based management tool. When data gaps are filled, they empower an organisation to elevate its ESG standards, drive value and enable smarter investment opportunities that swing in its favour.