ESG stands for Environment, Social, and Governance. Together, these three letters signify a company’s behaviour on environmental matters, how it engages with society, and the strength of its governance. However, gaps in ESG data can lead to a negative impact on the progress of the Sustainable Development Goals (SDGs) set by the United Nations (UN). The availability of ESG data is instrumental in environmental analysis and monitoring, and is a key element to achieving sustainable development.
Traditionally, companies didn’t commonly report ESG data and the information released varied considerably. There was a lack of structure, guidance and consistency. But today, ESG data has garnered more attention from investors, shareholders and clients alike, who are now accrediting growing value to ESG.
This increased interest has brought ESG information to the forefront of reporting discussions and as a result, many businesses are now seeking to share their ESG initiatives through more structured and consistent reports.
In a 2019 report, the United Nations Environment Programme (UNEP) disclosed that only 23% of the environment-related SDG indicators were on track to meet their target. Of the remaining 77% of SDG indicators, 68% of indicators were unable to be assessed due to insufficient data, and 9% showed no progress toward meeting their target.
Though there was an increase in the number of indicators with sufficient data for analysis as of July 2020, the UNEP noted an increased number of indicators trending towards not meeting projected targets or showing little or no progress, further highlighting the need for adequate data monitoring and reporting.
As the world gradually returns to normal after COVID-19, bridging ESG data blind spots will help stakeholders measure the progress and influence of their portfolios on the SDGs. Quality information will also help policymakers and regulators define appropriate policies, evaluate systemic risks, and ensure that recovery plans tackle any potential ESG hazards.
What is ESG data?
ESG data provides information on a business and its impact on its surroundings. For instance, of a given company:
- Environmental aspects can be comprehended through information on its carbon emissions, how they use renewable energy sources or the water stress levels that they are producing.
- Social aspects can be comprehended through information on labour standards and human capital.
- Governance aspects can be comprehended through information on business ethics, the company’s involvement in any corruption or statistics on the corporate board.
Companies that prove to have strong ESG performance not only see higher returns on investments, but tend to have more long-term investor partnerships. Considering a company’s ESG performance means looking at sustainability across the supply chain. That means examining how its third parties operate, and if they adhere to standardised regulations.
Strong ESG data isn’t only beneficial for the companies, but for the investors as well. Increasingly, investors want to ensure the companies they partner with can mitigate risk and generate sustainable long-term financial returns. For them, knowing their corporate clients are sustainably conscious means they can expect successful financial results.
ESG data gaps and their impact on SDG progress
The landscape of SDG data is afflicted with disclosure gaps related to crucial ESG problems, such as nature loss or climate change, which are obstructing our capability to actually progress. Moreover, these ESG data gaps are also threatening the attainment of the SDGs.
The recent UNEP report examines the 92 factors that have the most relevance to the environment-related dimension of the Sustainable Development Goals. The report discloses that although information accessibility has improved, presently 58% of the environment-related factors have inadequate data to evaluate progress.
However, inadequate data is not the only hurdle in the comprehensive analysis of the SDGs. Non-standardised approaches to data analysis on a global level have further hindered the identification of potential synergies between the SDGs, according to the UNEP report. The SDGs exist within complex systems that should not be considered as a singular, discrete issue.
The combined lack of data and non-uniform approaches to analysis create numerous challenges when investigating the intersection of these indicators. In fact, the report states that of the more than 2,000 environment-related potential synergies that were identified to aid in the understanding of environmental factors related to the SDGs, only 20% of these interactions could be investigated due to inadequate data.
Until recently, investors didn’t have much access to ESG information. As a result, they had to accept ESG scores offered by a diverse group of rating agencies. But now that more investments are being made into ESG-related products, investors have started demanding access to the raw data supporting these ratings.
Companies also need to be aware of their ESG performance and which vendors they choose to partner with. With a greater approach to sustainability, companies will see higher ROI, increased brand recognition, and stronger business relationships. If companies fail to meet ESG requirements, they risk losing all that and more.
Thanks to technological advances, new providers and even stakeholders can now gather vast data sets from company disclosures, social networks, news and other sources. Yet, given that the ESG industry is still evolving, there’s little consensus on what information is relevant and factual, or even how to accumulate it.
Therefore, a more integrated approach to collecting information is crucial for the effective measurement of environmental progress toward the 2030 Agenda. We need companies to disclose ESG risks in order to help fill the information gaps.
How to address ESG data gaps
Encouraging capital markets, companies, and other independent entities to proactively reveal ESG threats will help bridge these data gaps. To avoid further ecological harm and to spark action, companies must disclose more information on hazardous ESG risks, and stakeholders should continue pressuring them to do so.
By bridging these data gaps, companies are helping to create new opportunities for correlation analysis of environmental data, which can provide new insights on the interlinked nature of certain SDG indicators, as well as encourage the development of alternative strategies when assessing potential SDG synergies.
Understanding the interlinkage of SDG indicators, as well as how they interact at multiple levels can better inform the creation and execution of future analysis and reporting strategies, and ultimately lead to a more effective use of both ESG and SDG data.
To help companies manage ESG risks more effectively, we have launched ethiXbase GreenLITE, a new supply chain risk management platform that empowers companies to ensure resilience, enable sustainability, and deliver impact within their network of third-parties. The platform enables supply chain participants to enhance their ESG practices, benchmark against their peers, and use their improved ESG standards as a unique selling point.
ethiXbase GreenLITE enables businesses to elevate the UN’s 17 SDGs and gives our clients the tools and insights they need to positively influence their business operations and achieve a more sustainable and resilient future.