The Financial Reporting Council (FRC) Lab has published a new report titled “ESG Data Distribution and Consumption” examining how investors obtain and use environmental, social and governance (ESG) data on companies, and highlights what actions companies can take to facilitate this.
The report highlights an ecosystem heavily dependent on third parties for comparable ESG data, and while investors use companies’ annual reports for qualitative context, most ESG metrics and data come from third-party providers who compile, standardise and derive data from company reporting. Investors occasionally use direct company data to check third-party accuracy.
Investors want companies to focus annual reports on ESG risks, opportunities and progress relevant to their business. Therefore, to not obscure relevant information, data sheets can be helpful in containing all ESG metrics in one place to facilitate third-party and investor data collection.
As investor demands for ESG data continue to grow, strong interconnectivity between narrative and data reporting is critical to avoid greenwashing and maintain credibility.
Commenting on this, FRC executive director of regulatory standards, Mark Babington, said: “Faced with ever increasing requests for ESG data from investors and data providers, it is important for companies to understand how that data is being accessed and used and how they can best meet users’ data needs.
“However, ESG data is just one source of information, which investors are combining with narrative and other sources. This means that it is also critical that companies clearly communicate their ESG priorities and ensure that the data and the narrative are consistent.”