ESG regulation is still fractured and siloed across geographies. But we need to get ready for a step-change towards mandatory regulation or risk losing the goodwill of our investors.
Data vendors have wildly different ESG ratings for the same companies and many of their claims just don’t stand up to sensible analysis.
Net zero targets have gone global but perhaps only 20% of them are realistic. So why would you risk your reputation on questionable data?
Here are five ways to avoid that:
1. Evolve your investor relationship into a partnership where you actively compare and help to improve the ESG performance of portfolio companies.
2. Drop the “black box” metrics and unpack scores using in-house analysis to defend your investment decisions.
3. Automate ESG measurements to reduce dependency on inaccurate or poor quality data and improve trust.
4. Watch out for sustainable finance policies that could cause a (painful) revolution as companies are forced to put their deeper asset data out there.
5. We can no longer depend on past performance to determine future challenges, so prepare for a shift to forecasting future risks.
Even if some of our current ESG data is deeply flawed there are still ways to make ethical decisions. Until regulation does this for us, we need to do it ourselves.