Europe: What does green mean? Investors grapple with definitions and data

Coming up with accurate data on companies’ environmental, social and governance records has always been difficult for investors. Demand for so-called ESG funds may be high, but understanding where the green capital should flow is not always obvious. The problem is most often a lack of meaningful, reliable data.

“At the moment, the risk is that it is ‘garbage in, garbage out,” says Bernard de Longevialle, global head of sustainable finance at S&P Global Ratings.

Others agree. According to a 2020 BlackRock survey of 425 investors across the world — together representing $25tn in assets under management — the poor quality or unavailable ESG data and analytics represent the biggest obstacle to sustainable investing.

The EU has now set out to rectify matters. Through a mushrooming array of rules and directives, the bloc is seeking to pin down what can be called a sustainable investment in its member states, as well as providing clearer reporting standards — although experts warn that initial results may be patchy.

The centrepiece of Brussels’ sustainability legislation is a taxonomy that defines what is green. While it has been in force since last summer, its disclosure requirements will only kick in next year. In the meantime, the debate continues over certain technical elements, as well as the various shades of green and what can be termed sustainable.

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