Can self-reporting be effective for investors?

Most climate and ESG data is self-reported – can this approach ever provide investors with the reliable and comparable data they need to make the best investment decisions?

Self-reported data makes up a lion’s share of the climate and sustainability information available to investors but is often lacking in transparency and comparability. Data is crucial for investors to make responsible, long-term decisions so if corporate data is inconsistent it could hold back the huge levels of investment needed in sustainable solutions to limit climate change.

Data availability and accessibility also play key roles in triggering innovations that can help transform financial markets to align with global climate goals. EIT Climate KIC’s Climate Innovation Summit in Dublin on 6 November saw a group of experts including Andreas Hoepner and Jakob Thoma debate whether self-reporting can ever succeed in providing sufficient information to investors.

Opinion: Self-reporting can be effective

Andreas Hoepner & Fabiola Schneider, University College Dublin

We argue it is possible for self-reporting to be effective and sufficient for investors, but currently less than 2 per cent of companies report 100 per cent of their Scope 1 greenhouse gas emissions. Average disclosure is far below 95 per cent. So, more work needs to be done and we need more accuracy and simplicity in sustainability reporting.

But we think the fact that 20 companies are reporting all their emissions – or providing a quantitative statement of completeness showing how much they are collecting and reporting on if it’s not 100 per cent – shows that it is actually possible to provide effective and sufficient data for investors through self-reporting.

The quantitative statement of completeness is important. If a company can collect GHG data for 92 per cent of its revenues it’s better for it to say that than pretend it has collected everything. We need quantitative statements of disclosure in percentage terms – this data point is called Percentage of Disclosure or ES074 in Bloomberg’s environmental disclosure score – not just text in footnotes. We can’t build benchmarks on text only.

Investor demand for more clarity on ESG and sustainability is growing, and this should be a driver for companies to provide this type of clarity on emissions data. For example, we’ve seen recently the Church of England Pension Fund and Swedish AP7 pension fund challenge some companies they think might not be transparent enough in their sustainability reporting and disclosures of lobbying activities. So investors clearly do care about sustainability reporting and corporations putting their lobbying money where the mouth is.

We need also more education – some companies want to report 100 per cent of their emissions but don’t realise how hard it is. There needs to be transparency between company managers and people on the ground collecting sustainability data. Senior executives need to be trained in how hard it is to measure all of your emissions. They should then understand it requires budgets and technical expertise.

Opinion: Self-reporting isn’t effective

Jakob Thoma, 2 Degrees Investing Initiative

There are a few issues with self-reporting mechanisms, one being that the data is often presented in a way that’s not right for investors. Financial markets are moving into real-time data and big data, but traditional financial reporting channels are quarterly and sustainability reports are often published yearly. If, for example, your sustainability data from the 2017-18 financial year is published in, say, April or May 2019 – how relevant is that information to investors? Since the reports are issued so infrequently, they become static.

Granularity is also an issue. If you think about climate policies, you want to understand, for example, where all the power plants of a company are. If companies only report that global RE investment reached a certain level in the year, it’s not the kind of granularity you need as an investor to get an idea of how the company is aligned with regional science-based targets and how it is exposed to regional transition risks.

Another issue is that sustainability reporting in almost all cases revolve around performance indicators such as the number of jobs created or estimated avoided emissions. But everything that’s modelled internally won’t be comparable across companies. You can just change discount rates and then suddenly you have a different results. None of this will be comparable unless everyone uses the same model, which is very unrealistic to expect. I think it’s very unlikely that we’ll ever have a market standard or model used by all companies in the world– and indeed it is unclear that from a company management perspective this is even desirable.

I’m not saying you can’t draw any information from self-reported sustainability data, of course you can, in the same way you can draw information from an annual report. But self-reporting will play a second fiddle role. I think the data investors need will be made transparent in non-traditional financial reporting channels such as social media, regulatory reports and asset-based data. ESG data providers do some of this work already and this is the type of data that will inform investment decisions. 

This article is part of an eight-part series by Climate-KIC and Environmental Finance discussing Mission Finance, the theme of the 2018 Climate Innovation Summit in Dublin on 6 – 8th November.  To see the series hub click here.

 
Location
Ireland
Related Goal
Goal 10: Mainstream climate in financial markets
Articles you may be interested in
In our community
Net zero requires just, inclusive and radical transformations
Net zero requires just, inclusive and radical transformations
In Detail
New report: Is Germany ready for the future?

E3G´s new report “Is Germany ready for the future? The case for action in a climate-changed world.”, supported by EIT Climate-KIC, finds that Germany...

New report: Is Germany ready for the future?
Opinion
Redesigning venture capital (part II): A blueprint
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
Redesigning venture capital (part II): A blueprint
In The News
EIT Climate-KIC’s work in Slovenia

Last November, the Slovenian parliament passed a motion to...

EIT Climate-KIC’s work in Slovenia
In The News
Slovenia adopts EIT Climate-KIC Circular, Regenerative Economies Deep Demonstr...

The Slovenian parliament passed a motion to adopt an...

Slovenia adopts EIT Climate-KIC Circular, Regenerative Economies Deep Demonstration
In our community
Cities in a 1.5 degree world: What is there to learn from Leuven?
Cities in a 1.5 degree world: What is there to learn from Leuven?
In our community
Slovenia adopts EIT Climate-KIC circular economy proposal: Q&A with Kirs...
Slovenia adopts EIT Climate-KIC circular economy proposal: Q&A with Kirsten Dunlop
Innovation Spotlight
Elemental Water Makers’ solar desalination an asset as climate change ...

EIT Climate-KIC supported Elemental Water Makers is a water desalination scale-up that’s transforming water systems by enabling...

Elemental Water Makers’ solar desalination an asset as climate change threatens clean water
Innovation Spotlight
Zolar’s household solar kit is democratising the energy sector

Energy production and consumption are the largest sources of greenhouse gas emissions in the European Union, accounting for 80 per cent...

Zolar’s household solar kit is democratising the energy sector
In our community
Interview with policy and governance innovation experts at Madrid and Basque...
Interview with policy and governance innovation experts at Madrid and Basque Country Universities
In The News
COP25: Measurement and attribution of climate contribution to financiers

With the carbon costs of travel in mind, key...

COP25: Measurement and attribution of climate contribution to financiers
In The News
COP25: Madrid city side event

With the carbon costs of travel in mind, key...

COP25: Madrid city side event
In our community
Interview about Futures Literacy with Riel Miller, Head of Foresight at UNES...
Interview about Futures Literacy with Riel Miller, Head of Foresight at UNESCO
In The News
COP25: Climate leader insights

With the carbon costs of travel in mind, key...

COP25: Climate leader insights
In The News
OpenSurface land-use tracking platform launches at COP25

Pioneering AI, satellite and ground-sourced data technology drives more...

OpenSurface land-use tracking platform launches at COP25
In The News
COP25: Towards the systemic transformation

With the carbon costs of travel in mind, key...

COP25: Towards the systemic transformation
In The News
Helsinki launches Climate Watch to track city’s emission reductions

The City of Helsinki recently launched the ‘Climate Watch’,...

Helsinki launches Climate Watch to track city’s emission reductions
Opinion
Moments matter*
Michelle Zucker Director, Community Activation, EIT Climate-KIC
Moments matter*
In The News
Naked Energy secures €6.17 million in funding

Naked Energy, an EIT Climate-KIC supported solar energy startup...

Naked Energy secures €6.17 million in funding
In The News
First European cluster accelerator programme launched in Frankfurt

How to take clusters to the next level and...

First European cluster accelerator programme launched in Frankfurt
Innovation Spotlight
Ioncell’s fiber innovation could help drive the circular economy transitio...

The textile, garment and fashion industries generate tonnes of pollution each year and recycle very little, which...

Ioncell’s fiber innovation could help drive the circular economy transition
Opinion
The challenge of redesigning venture capital
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
The challenge of redesigning venture capital
In Detail
Clean and Healthy Construction

Insights from the C40 World Mayors Summit in Copenhagen: Master Class and Market Dialogue for Clean and Healthy Construction. Why clean construction? Kevin Austin,...

Clean and Healthy Construction
Opinion
If we have figured out transformation, why is the world still in such a mess?
Susannah Fisher Research, EIT-Climate-KIC
If we have figured out transformation, why is the world still in such a mess?
Opinion
The tyranny of categorisation
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
The tyranny of categorisation
Opinion
EIT Climate-KIC strengthens biodiversity through systems change
Felicity Spors Head of International Affairs, EIT Climate-KIC
EIT Climate-KIC strengthens biodiversity through systems change
Opinion
Why our cities must act as beacons for ambitious climate action
Tom Mitchell Chief Strategy Officer, EIT Climate-KIC
Why our cities must act as beacons for ambitious climate action
In The News
Biggest-ever global hackathon to tackle climate breakdown

Over 100 Climathon events around the world turn grassroots...

Biggest-ever global hackathon to tackle climate breakdown
In The News
Global call for transformative solutions to tackle the climate emergency

EIT Climate-KIC launches Climathon Global Awards and Healthy, Clean...

Global call for transformative solutions to tackle the climate emergency
In The News
EIT Climate-KIC supported crop insurance project acquired by world’s largest...

The insurance sector is well aware of the rising...

EIT Climate-KIC supported crop insurance project acquired by world’s largest re-insurer