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Sustainable investments – driving organizations to be ESG compliant

GlobalData Thematic Research

One of the world’s largest money managers BlackRock (with nearly $7 trillion assets under management) is rethinking its investment strategy to include sustainability as the “new standard for investing”. A survey from Responsible Investor found that 78% of investors consider ESG management as one of the key issues while choosing an asset manager. Asia Pacific (APAC) is catching up with this global trend of sustainable investments. The likes of Japan’s Government Pension Investment Fund ($1.5 trillion assets) tracking ESG indices, stood as an example for others in the country to consider responsible investments. Likewise fund managers in China and India are also pushing for sustainable investments.

ESG measurement is entering the mainstream, sending a clear signal for companies to improve ESG communication. Corporate ESG reports are the primary means of communicating to investors a company’s ESG compliance.

Challenges rocking ESG reporting

Many companies provide inadequate information for investors to make informed decisions based on ESG compliance. The lack of standardized metrics or guidelines for ESG reporting cause inconsistent ESG data. The lack of consistent, reliable data will hinder the acceptance of ESG reporting.

The Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Principles for Responsible Investment (PRI) are among a group of organizations that provide guidance on ESG reporting. However, as yet there is no universal reporting system that supports every industry’s reporting needs. However, things may change. Investors in the US are pressing the Securities and Exchange Commission to standardize ESG disclosures.

The path forward

Companies must benchmark themselves against their peers with the help of ESG rating providers. The idea of ESG ratings is further explored in this blog (Confusing ESG data threatens to hinder sustainable investing). This provides a clear understanding about the ESG issues that are most pressing, and is a significant step towards creating ESG reports of value to investors, well beyond simple greenwashing or public relations. However, in the absence of national or international ESG standards, the onus for reporting lies largely with individual companies. For some, improving ESG reporting is a daunting task.

Although companies in the APAC region are lagging behind their European and American counterparts in terms of ESG reporting, waiting for the US or European standards to develop is not going to do them much good. Instead, they should focus on what's important from a national or regional perspective. Early movers will be able to steer the course as and when an International Financial Reporting Standards (IFRS) equivalent emerges. Working collaboratively with local peers will also help drive national ESG standards.

Consequently, GlobalData has developed an ESG framework, which is published in full in its recent sustainability report. The framework highlights the contributing factors and mitigating actions for environment, social, and governance issues. Moreover, it provides a comprehensive list of ESG

consultants and their offerings that can give a clear picture for companies as to what and where to look for, while commencing their ESG reporting.

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