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 The News
For cities to become climate-resilient, they need to invest in capability buil...

As cities grapple with transforming and adapting to meet...

For cities to become climate-resilient, they need to invest in capability building
In The News
EIT Climate-KIC signs declaration ‘EU Green Deal: from local to global’

All around the globe, cities and regions are driving...

EIT Climate-KIC signs declaration ‘EU Green Deal: from local to global’
In The News
EIT Climate-KIC organises first Festival of Circular Economy and Bioeconomy in...

Running from November 28 to December 2, the activities...

EIT Climate-KIC organises first Festival of Circular Economy and Bioeconomy in Santander
In The News
What does climate action look like for the Culture and Creative Sector Industr...

The Culture and Creative Sector Industries (CCSI) can play...

What does climate action look like for the Culture and Creative Sector Industries?
In The News
Collaboration and knowledge sharing is key to unlocking capital for climate ne...

In order to reach net zero by 2030, or...

Collaboration and knowledge sharing is key to unlocking capital for climate neutrality
In The News
Gipuzkoa shapes the green future with local actors

Gipuzkoa is taking action towards sustainability through collaboration with...

Gipuzkoa shapes the green future with local actors
In The News
How can we enable African climate innovation to thrive?  

Much of the discussion around COP27 this year has...

How can we enable African climate innovation to thrive?  
In The News
EIT Climate-KIC and partners publish recommendations to include systemic lands...

The European Green Deal represents a unique opportunity for...

EIT Climate-KIC and partners publish recommendations to include systemic landscape thinking into EU policies to achieve the Green Deal
In The News
The challenges of building a resilient farmers’ community in Africa

Audrey S-Darko is a researcher and a farmer from...

The challenges of building a resilient farmers’ community in Africa
In The News
EIT Climate-KIC joins business and civil society to call on governments to uph...

As the official COP27 outcomes are being drafted this...

EIT Climate-KIC joins business and civil society to call on governments to uphold commitments to 1.5
In The News
Climate innovation: “The purpose is people, everything else is just the mean...

Massamba Thioye is leading the UN climate change Global...

Climate innovation: “The purpose is people, everything else is just the means”
In The News
Become a European Climate Leader

The Climate-KIC International Foundation is looking for a Supervisory...

Become a European Climate Leader
In The News
EIT Climate-KIC launches open-access database to map start-up ecosystem, now w...

Climate start-ups supported by EIT Climate-KIC are now worth...

EIT Climate-KIC launches open-access database to map start-up ecosystem, now worth €11.8 billion in combined enterprise value
In The News
Slovenia higher education reform aims to create a supportive environment for s...

Slovenia’s ministry of higher education is gearing up for...

Slovenia higher education reform aims to create a supportive environment for students and teachers
In The News
Co-designing the future of coal regions

EIT Climate-KIC launches the Post Coal Future Lab initiative...

Co-designing the future of coal regions
In The News
Bringing in business is key to achieving systems transformation on the climate...

“What does it mean to enable businesses to deal...

Bringing in business is key to achieving systems transformation on the climate crisis
In The News
What will it take to build the New European Bauhaus?

“Beautiful, Sustainable, Together”. These are the values – and...

What will it take to build the New European Bauhaus?
In The News
EIT Climate-KIC selects five partners in Global South to implement gender main...

The intersection of climate and innovation remains a male-dominated...

EIT Climate-KIC selects five partners in Global South to implement gender mainstreaming into entrepreneurship
In The News
Citizens inspire a car-free Leuven

A broad survey, possible solutions displayed on screens, inspirational...

Citizens inspire a car-free Leuven
In The News
EIT Climate-KIC accelerates climate tech solutions for a net-zero Africa 

Climate-focused start-up teams in developing countries face distinct challenges...

EIT Climate-KIC accelerates climate tech solutions for a net-zero Africa 
In The News
New European Bauhaus Hackathons will reward most innovative solutions

EIT Community New European Bauhaus partners will be hosting...

New European Bauhaus Hackathons will reward most innovative solutions
In The News
Slovenia takes a pivotal turn towards circularity

Slovenia has decided to actively combat climate change by...

Slovenia takes a pivotal turn towards circularity
In The News
Innovative climate projects part of EIT Community New European Bauhaus initiat...

The European Institute of Innovation and Technology (EIT) has...

Innovative climate projects part of EIT Community New European Bauhaus initiative
In The News
A new air and climate plan for Milan

The City Council of Milan approved the Air and...

A new air and climate plan for Milan
In The News
Meet the three EIT Climate-KIC innovators nominated for EIT Awards

Three innovators from EIT Climate-KIC’s community have been nominated...

Meet the three EIT Climate-KIC innovators nominated for EIT Awards
In The News
100 European cities take up the challenge to become carbon neutral by 2030

On Monday 13 June, the representatives of the 100...

100 European cities take up the challenge to become carbon neutral by 2030
In The News
The role of cities and regions in transforming wood value chains

Climate smart forest economies It’s a crucial decade for...

The role of cities and regions in transforming wood value chains
In The News
Glasgow City Region pioneering forest economy innovation to drive climate acti...

Scotland’s largest city region is actively tackling climate change...

Glasgow City Region pioneering forest economy innovation to drive climate action
In The News
Forging sustainable timber construction in Europe

EIT Climate-KIC and Built by Nature, announce an initiative...

Forging sustainable timber construction in Europe
In The News
EIT Climate-KIC launches new Circularity Thinking training programme

EIT Climate-KIC is launching Circularity Thinking courses to tackle...

EIT Climate-KIC launches new Circularity Thinking training programme