A new whitepaper published by the Principles for Responsible Investment (PRI), Driving meaningful data: financial materiality, sustainability performance and sustainability outcomes, has highlighted the importance of consistent and comparable ESG data to help investors understand sustainability risks and opportunities.
In the paper, the organisation proposes a three-point framework which can help to understand how various players in the financial market are managing sustainability risks and opportunities, and how their actions contribute towards positive outcomes.
The framework covers ESG risks and opportunities, sustainability performance; and social goals and planetary thresholds as three key components to enable investors and corporates to “translate social and environmental goals into day-to-day decisions”.
Morgan Slebos, director of sustainable markets at the PRI, commented: “For investors, statements of good intentions, plans to be more efficient in the future, and incremental improvements from today’s performance all signal that progress is being made.
“But it can be difficult to calibrate and judge in practice. We are no longer facing a question of ‘Are we doing better than before?’, but ‘How good is good enough?’”
He noted that while many PRI signatories still consider the ESG risks to their businesses to be their primary concern, the focus should now be shifting “beyond financial risk-based thinking” and towards “purposeful contributions to sustainability goals or outcomes”.
To make this transition, investors need access to what Slebos calls “decision-useful” data, i.e. data that can help investors make responsible decisions that will lead to positive outcomes.
“We argue that data is needed to assess the significance of an issue in terms of its future impact and exposure to it, and where performance is below what should be relative to a goal then decisions can be made to efficiently allocate capital to it,” Slebos writes in a blog.
“Therefore, a key part of sustainability reporting must target, measure, track, and report on the progress of financing in environmental terms to maximise the benefits and to minimise the mistakes in meeting social and environmental goals.”
The PRI is working closely with regulators and standard setters to resolve corporate reporting on ESG issues, with the data needs of investors being one of the key topics under discussion.
It is also collaborating with the World Business Council for Sustainable Development on facilitating sustainability reporting, with the aim to create “a truly end-to-end sustainable reporting system”.