Is ESG Data Going Mainstream?
It wasn't so long ago that U.S. corporate reports on environmental, social and governance (ESG) risks were as rare as penguins in the desert.
Not anymore. Last week, American Electric Power published a sustainability report detailing its environmental and social performance, including laudable goals to double renewable energy sources and reduce contractor injuries by 10 percent. Coca-Cola Co.'s recent 10-K filing outlined water scarcity risks and how those risks will likely be exacerbated by climate change. National Grid is now disclosing publicly how it is linking executive pay to greenhouse gas reduction goals.
These advances are encouraging, but it's still the exception rather than the rule, especially among U.S. companies where ESG disclosure remains spotty and inconsistent.
Pressure is building for companies to do better.
Fueled by climate change concerns and egregious governance breakdowns that triggered the global financial crisis, investors, financial service firms and policy-makers are pushing harder than ever for comprehensive corporate disclosure of environmental, social, and governance factors.
Last fall, leading institutional investors made a first-time request for the SEC to consider how 'material' environmental, social and governance data should be integrated into company SEC filings. "Action by the SEC to require better disclosure of climate change risks — as well as additional environmental, social and governance risks — would result in better, more informed decisions by investors," said Maryland State Treasurer Nancy Kopp, who was joined in signing the letter by pension funds and asset mangers in California, New York, New Jersey and the United Kingdom.
Governments, NGOs, regulatory bodies and stock exchanges are also pushing to encourage or require standardized reporting of corporate ESG data, including the French and Swedish governments, the Global Reporting Initiative, China's Assets Supervision and Administration Commission and the London and Malaysian stock exchanges.
But perhaps the strongest signal is coming from financial service giant Bloomberg, which is launching a groundbreaking ESG data service this year for its customers. Starting late this year, clients using Bloomberg's 250,000 data terminals will have access to all publicly-available ESG data from 2,000 to 3,000 companies. "The idea is to gather the data and commoditize the data so that financial analysts can opt to use it," said Emil Efthimides, manager of Environmental, Social and Governance Data Project at Bloomberg, speaking at the Ceres annual conference in San Francisco.
Given its unique access to mainstream investors, Bloomberg's foray into ESG is a potential game changer. "Eleven percent of assets under management are socially responsible. Now the other 89 percent will get a chance to see this data," Efthimides said. "Maybe they'll dabble in it or even request the information from companies. It will become a virtuous cycle."
Efthimides touches on the million dollar question: Will mainstream investors use ESG data and how will it influence their investment decisions?
Today, despite studies showing clear correlations between share price performance and close attention to sustainability issues, few mainstream investors are integrating ESG into their research and valuations. They're even ignoring climate change risks, which is especially perplexing given that the EPA and Congress are inching ever closer to setting carbon emission limits that would have far-reaching business implications.
But I expect investors will soon change their tune, as climate-related business impacts become embedded into the global economy and as overall ESG reporting becomes more standardized and uniform. A new SEC that is significantly more open to investor concerns should help, too.
Mindy Lubber is president of Ceres, a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. For more information, visit http://www.ceres.org