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
EIT Climate-KIC supported WINnERS secures over €1.5 million in funding

WINnERS, an agricultural supply chain de-risking service supported by...

EIT Climate-KIC supported WINnERS secures over €1.5 million in funding
In our community
Interview with Marian-Constantin Vasile, Trainer, EIT Climate-KIC
Interview with Marian-Constantin Vasile, Trainer, EIT Climate-KIC
In our community
Interview with Piotr Magnuszewski, Programme Leader, Centre for Systems Solu...
Travis Hendrix tbd
Interview with Piotr Magnuszewski, Programme Leader, Centre for Systems Solutions
Opinion
How the climate community breeds its own inaction
Dominic Hofstetter EIT Climate-KIC
How the climate community breeds its own inaction
Innovation Spotlight
Not your ordinary reusable bag: Plant trees & earn discounts while you s...

Remember a time when you’d carry your purchases home in a plastic bag? Neither can we. That’s...

Not your ordinary reusable bag: Plant trees & earn discounts while you shop with goodbag
In our community
Interview with Mike Asquith, Project Manager – Integrated Environmental As...
Interview with Mike Asquith, Project Manager – Integrated Environmental Assessment, European Environmental Agency
In The News
EIT Climate-KIC launches strategy for 2019-2022

EIT Climate-KIC, innovation community established and funded by the...

EIT Climate-KIC launches strategy for 2019-2022
Opinion
A systemic approach to innovation in land use and nature-based solutions
Daniel Zimmer Director Sustainable Land Use at EIT Climate-KIC
A systemic approach to innovation in land use and nature-based solutions
Opinion
How moderation could accelerate climate action
Dominic Hofstetter EIT Climate-KIC
How moderation could accelerate climate action
In The News
Close the circularity gap to avert catastrophic climate change, Davos told tod...

A new report by Circle Economy, supported by EIT...

Close the circularity gap to avert catastrophic climate change, Davos told today
In our community
Interview with Mia Dragovic Matosovic, Scientific Researcher, Institute for ...
Interview with Mia Dragovic Matosovic, Scientific Researcher, Institute for European Energy and Climate Policy
In our community
Interview with Charlotte Breen, from C40’s Business & Innovation Team
Interview with Charlotte Breen, from C40’s Business & Innovation Team
In The News
EU group invites feedback on sustainable finance definition

The Technical Expert Group on Sustainable Finance (TEG) set...

EU group invites feedback on sustainable finance definition
In Detail
Municipality-led circular economy case studies from EIT Climate-KIC and part...

How can cities create prosperity for expanding populations whilst transitioning through systematic change to low-carbon economies? How can cities achieve continued prosperity whilst preserving...

Municipality-led circular economy case studies from EIT Climate-KIC and partners
In Detail
Transformative change through innovation: An analysis of the role of innovat...

One of the areas with significant potential to reduce carbon emissions is the energy sector, including the transition away from coal. It is, and...

Transformative change through innovation: An analysis of the role of innovation in five transition regions
In The News
COP24 report: The vital role of land use in climate mitigation

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

COP24 report: The vital role of land use in climate mitigation
In The News
COP24: Distributed ledger technology could help enact Paris Agreement

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

COP24: Distributed ledger technology could help enact Paris Agreement
Opinion
System innovation is needed to help regions shift to a low-carbon economy
System innovation is needed to help regions shift to a low-carbon economy
In The News
COP24: Social innovation to drive just transition of coal regions

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

COP24: Social innovation to drive just transition of coal regions
In Detail
DLT for climate action assessment

DOWNLOAD THE REPORT Over the past decade, we’ve witnessed a myriad of milestones that have put the vision of a prosperous, climate-resilient society on...

DLT for climate action assessment
In The News
EIT Climate-KIC’s ConnectedClusters launches at EUROCITIES

EIT Climate-KIC’s ConnectedClusters project—which aims to accelerate innovation clusters...

EIT Climate-KIC’s ConnectedClusters launches at EUROCITIES
Opinion
St. Patrick is on a Mission – #MissionFinance 1.5 C
Sandra Vlašić, Partnerships, Resources and Stories Terra Hub
St. Patrick is on a Mission – #MissionFinance 1.5 C
In our community
EIT Climate-KIC to showcase its top 30 cleantech startups during Slush 2018
EIT Climate-KIC to showcase its top 30 cleantech startups during Slush 2018
In The News
How to unlock the finance needed for integrated landscape approaches

Why integrated landscape approaches matter and how to unlock...

How to unlock the finance needed for integrated landscape approaches
In The News
Regional Innovation Scheme start-ups showcase cleantech achievements supported...

Last month (October 2018) in Vienna, Austria, 32 start-ups...

Regional Innovation Scheme start-ups showcase cleantech achievements supported by EIT Climate-KIC
In The News
City Finance Lab explores new advisory services to catalyse investment in sust...

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

City Finance Lab explores new advisory services to catalyse investment in sustainable cities
In The News
EIT Climate-KIC responds to consultation on Long-Term Strategy for EU GHG emis...

As an active member of the community working to...

EIT Climate-KIC responds to consultation on Long-Term Strategy for EU GHG emissions reduction
Opinion
Distributed ledger technologies are here to stay
Dr. Harald Rauter Regional Innovation Lead, Climate-KIC
Distributed ledger technologies are here to stay
In The News
Search for 100 1.5C-compatible investments launched

The EU-backed Mission Innovation initiative has launched a framework...

Search for 100 1.5C-compatible investments launched
In The News
Risky business: Why 1.5C-aligned strategies are key to preserving capital

Decision-makers with responsibility for capital need to make bold,...

Risky business: Why 1.5C-aligned strategies are key to preserving capital