In an increasingly complex reporting landscape, firms are faced with an overabundance of frameworks and standards against which they can report their sustainability credentials. As stakeholders progressively highlight the need for consistent and comparable data1, standard-setting bodies are taking note. Public consultations for the International Sustainability Standards Board (ISSB) General Sustainability and Climate exposure drafts (IFRS S1 and S2), and the European Financial Advisory Group (EFRAG) Draft European Sustainability Reporting Standards (ESRS) were both live in Q2, 2022. The introduction of two draft standards with a potentially wide reach signals a trend towards the standardization of ESG reporting across jurisdictions.
Europe’s landmark anti-greenwashing rulebook for the investment industry, the Sustainable Finance Disclosure Regulation (SFDR) has triggered a growing number of investment funds to self-classify as either Article 6, Article 8, or Article 9. Since its implementation in March 2021, every financial market participant operating in the EU must disclose the extent to which their entity and investment products are aligned with the SFDR sustainable investment objectives (Article 6, 8 or 9 funds).
Investors are eager to incorporate environmental, social, and governance – ESG – considerations in their investment strategies, even outside of what is explicitly framed as “sustainable investing”. In this blog, we explain how sustainability standards and frameworks are contributing to this trend; how they are ensuring a clearer rationale on sustainability in finance, and finally, where reporting guidance is headed towards.
The rise of sustainable investments has led to the burgeoning growth of sustainability standards, and frameworks for disclosure of investor critical ESG information. Among other things, Standards and Frameworks are helping companies and investors measure and disclose sustainability-related performance and make well-informed decisions while factoring in different emerging risks. In addition, they allow comparability over time, across sectors/industries, and in between peers or potentially with any company(s) operating anywhere in the world.
The United Nations Environment Assembly (UNEA) met at the end of February 2022 to discuss the ongoing problems of chemical and plastic pollution. At this meeting, the environment ministers from 193 Nations agreed to establish an ambitious science-policy panel for global management of chemical waste and pollution and, for the first time, to forge a worldwide and legally binding treaty for tackling plastic pollution 1, 24. Work on this treaty, which will cover all stages of the plastic life cycle, is to begin this year, with a draft agreement to be completed by 20242.
Of course, chemical pollution is not purely caused by plastic production, with agriculture being one of the other leading contributors25. In fact, pollution from agrochemicals is one of the strongest factors linked to habitat collapse26. The new Value Alignment Tool (VAT) from ESG Book will allow investors to systematically screen over 29,000 companies on their revenues and business involvements from 7 overarching themes, with 36 different screens available. Within the Chemical theme, the VAT allows for the screening of assets involved in plastic, fertiliser, and pesticide production, tackling three of the leading causes of destructive chemical pollution.
In 2021, we published the first report of its kind assessing not only the financial effects of corporate gender diversity but also its impact on transparency. Using ESG Book data, supported by academic and industry research, the ‘More Than A Buzzword’ report assessed the effects of gender diversity on global public corporations. In particular, it examined whether more diverse companies demonstrate greater non-financial transparency1.
With gender diversity continuing to grow in importance and prominence as a key issue in the workplace, this follow-up report assesses the progress that has recently been made on the topic, and expands on several trends highlighted in last year’s study. In this update, we look beyond gender diversity to also include in our analysis minority representation, the employment and representation of persons with disabilities and supplier diversity.
The expansion of the Environmental, Social and Governance (‘ESG’) landscape has led to the creation of frameworks and standards catering to a range of industry stakeholders. The increase in the number of frameworks and standards has resulted in the proliferation of ESG indicators, against which organisations can report their non-financial performance.
The heightened investor demand for ESG disclosures, new regulations, and a growing number of frameworks and standards creates challenges for organisations looking to disclose their sustainability metrics1 . ESG Book streamlines this process by providing a single platform housing commonly used frameworks and standards. To further simplify the disclosure experience, and reduce the reporting burden, a cross-framework mapping functionality will be available on the platform to support users with their disclosure journeys. Indicator mapping is an approach through which indicators can be matched by relevance to find commonalities across frameworks and standards, identifying indicators where relevant information can flow between questionnaires.
This blog post aims to introduce the new indicator mapping feature for quantitative metrics, both within and across frameworks, which will be made available on ESG Book and discuss the ways in which mappings can be used to generate value for users.
On 28 March 2019, the EU Parliament voted that the new taxonomy will not be used as a reporting standard for all funds. Instead of forcing all kinds of funds to disclose how their portfolios are positioned with regard to the taxonomy, MEPs decided only funds which claim that they are investing with an ESG or socially responsible investing (SRI) approach will have to report how the fund is positioned by using the taxonomy. The new legislation will make it much harder for asset and fund managers to maintain “greenwashing strategies”. Nevertheless, conventional asset managers who claim to use ESG/SRI criteria in their overall approach will not have to publish this kind of reporting and may, therefore, be able to claim they have integrated ESG/SRI criteria even if they use them only in a very limited way.
The EU Taxonomy Technical Report published in June 2019 gives practical guidance for policymakers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate-neutral economy. To qualify as green, an investment needs to contribute to at least one of the following six objectives while not significantly harming any other:
Climate Change Mitigation – i.e. the activity contributes to greenhouse gas stabilisation consistent with the goals of the Paris Agreement, through certain prescribed means including, for example, the generation of renewable energy;
Climate Change Adaptation – i.e. the activity includes adaptation solutions that substantially reduce the adverse impact (or risk) of the current and expected future climate on (i) other people, nature or assets; or (ii) the economic activity itself, in each case without increasing the risk of an adverse impact on other people, nature and assets;
Sustainable Use and Protection of Water and Marine Resources – i.e. the activity substantially contributes to achieving the good status of water bodies or marine resources, or to preventing their deterioration when they are already in good status, through certain prescribed means (including, for example, through wastewater management);
Transition to a Circular Economy – i.e. the economic activity contributes substantially to waste prevention, re-use and recycling, through certain prescribed means (including, for example, by improving the recyclability of certain products);
Pollution Prevention and Control – i.e. the activity contributes substantially to pollution prevention and control through certain prescribed means (including, for example, by preventing or, where that is not practicable, reducing pollutant emissions into air, water or land (other than greenhouse gasses)); and
Protection and Restoration – i.e. the activity contributes substantially to protecting, conserving or restoring biodiversity and to achieving the good condition of ecosystems, or to protecting ecosystems that are already in good condition, through certain prescribed means (including, for example, sustainable land use and management).
In addition to contributing to one of the six objectives described above, for an activity to qualify as an environmentally sustainable activity under the Taxonomy Regulation, the activity must also comply with the following criteria:
No Significant Harm – i.e. the activity must not significantly harm any of the environmental objectives above;
Compliance with Technical Screening Criteria – i.e. the activity must comply with technical screening criteria for each of the six objectives that will be specified by the European Commission; and
Minimum Social and Governance Safeguards – i.e. the activity must be carried out in compliance with a number of minimum social and governance safeguards as referred to in the Taxonomy Regulation.
Application of the Taxonomy Regulation
The Taxonomy Regulation applies to the following parties:
“Financial Market Participants” who offer “Financial Products” – financial market participants (as defined in the Disclosure Regulation) will be required to provide, in pre-contractual disclosures and periodic reports, information on how and to what extent the investments that underlie their “financial products” support economic activities that meet the criteria for environmental sustainability under the Taxonomy Regulation. As defined in the Disclosure Regulation, “financial products” include:
(i) portfolios managed in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments;
(ii) alternative investment funds;
(iii) insurance‐based investment products meeting certain criteria;
(iv) pension products;
(v) pension schemes;
(vi) UCITS; and
(vii) pan‐European Personal Pension Products.
For those financial products that do not invest in environmentally friendly activities, a disclaimer will need to be included by the financial market participant stating that the relevant investments “…do not take into account the EU criteria for environmentally sustainable investments.”;
Financial and Non-financial Companies Falling under the Non-Financial Reporting Directive – firms in scope of the Non-Financial Reporting Directive will need to disclose information on how and to what extent the undertaking’s activities are associated with environmentally sustainable economic activities. The European Commission will publish the detailed reporting requirements by 1 June 2021; and
Individual Member States and the EU – individual Member States and the EU must apply the criteria specified in the Taxonomy Regulation for determining environmentally sustainable economic activities for the purposes of any legislative / measures setting out the requirements of financial market participants or issuers in respect of financial products or corporate bonds to label such products as “environmentally sustainable”.
2021 Key performance indicators
Last year, financial regulators in the EU have proposed new key performance indicators, or KPIs, to measure the alignment of banks, insurers and asset managers with the EU ‘green’ taxonomy:
For banks, the EBA has proposed a ‘green asset ratio’ (GAR), which would measure the value of climate-friendly loans, advances and debt securities as a proportion of a lender’s overall assets. The EBA mooted three additional indicators relating to advisory fees, trading books and off-balance sheet exposures associated with taxonomy-compliant activities.
Insurance: Under EIOPA’s proposals, insurers will need to report the ratio of non-life gross premiums and investments corresponding to activities identified as environmentally sustainable in the EU taxonomy.
Asset Managers: ESMA has recommended that asset managers report the total ratio of investments – both stocks and bonds – that are aligned to the taxonomy. According to the regulator, green bonds issued under existing standards should also be admissible as taxonomy-compliant investments until the completion of an overarching EU Green Bond Standard.
The announcement of the adoption of the Taxonomy Regulation on 15 April 2020 means that the Council has adopted its position at first reading. The Taxonomy Regulation now needs to be adopted by the European Parliament at second reading, before it is published in the EU Official Journal. It will enter into force 20 days following publication in the EU Official Journal, although the measures relating to the climate mitigation and adaptation objectives will apply from 31 December 2021, while requirements relating to the other environmental objectives are due to apply from 31 December 2022.
The Disclosure regulation is a parallel piece of legislation that will refer to the Taxonomy. The first reporting requirements for investment firms under those rules will start to apply in December 2021, with additional criteria included annually thereafter.
Current consultation on the appropriate set of rules for undertakings under the NFRD to include in their non-financial statements, consolidated non-financial statements or other relevant separate reports, when allowed, information on how and to what extent their operations are associated with economic activities that qualify as environmentally sustainable under the EU Taxonomy.
This requirement will apply from 1 January 2022 for the two climate-related objectives of the Taxonomy and from 1 January 2023 for the other four environmental objectives.
The criteria under the climate mitigation and adaptation pillars cover the economic activities of roughly 40% of listed companies, in sectors which are responsible for almost 80% of direct greenhouse gas emissions in Europe. This includes sectors such as energy, forestry, manufacturing, transport and buildings.
The Taxonomy Regulation already specifies that, in particular, non-financial undertakings under the NFRD are legally obliged to disclose:
The proportion of their turnover derived from products or services associated with environmentally sustainable economic activities.
The proportion of their total investments (CapEx) and expenditures (OpEx) related to assets or processes associated with environmentally sustainable economic activities.
Our guest for Quick Takes episode #3 is Doug Miller. Doug has had several roles in the renewable energy space, combined with blockchain. After four years at Energy Web developing blockchain solutions for energy transition needs, he recently became deputy director at the Clean Energy Buyers Association (CEBA) and is a co-founder of Zero Labs, a new startup grown out of Energy Web. Zero Labs will proceed to build a public tokenized renewable energy marketplace to boost market access, starting with crypto buyers. Check his twitter for the latest updates.
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Since the birth of civilisation, language has been one of humanity’s greatest tools. Developing alongside human society, language has become more than simple communication and education, having the power to shape perspectives and attitudes towards the subject at hand.
As early as the 18th century, when shipbuilding and mining were consuming increasing amounts of wood , people in Europe have been conscious about resource sustainability. Then, in 1975, US scientist Wallace Broecker brought the term ‘global warming’ into the public’s consciousness after including it in the title of one of his papers . Public awareness of the issues around sustainability and climate change has existed for decades, even centuries, but has never been as widespread as it is today. This growing recognition can be explored by taking a deeper look at how the language of climate change has evolved and the importance that this has.
Talking About Climate Change
The concepts of climate change and global warming originated with the scientific community. Consequently, important evidence-based information is often communicated to the general public in scientific and technical language that hinders accessibility and understanding. The recent talk of the town of keeping global warming to less than 2 degrees Celsius by 2100, for example, bears little meaning unless it is put in context. This temperature increase could cause more than 90% of global coastlines to experience a 20cm sea level rise, increasing coastal flooding and reducing a third of per capita crop production in Southeast Asia, it could cause the annual reoccurrence of the 2015 heatwave in India and Pakistan, which killed nearly 1700 people in two of India’s worst-hit states alone , and it has the potential to kill all coral reefs . That being said, many of these extreme events have not yet been experienced, and their future consequences can only be conjured by our imagination.
The effects of global warming are often discussed to be materialising decades into the future. Such language reinforces the distinction between our present selves and our future selves. This separation is problematic, as studies have found that we experience difficulties forming bonds with our future selves. In fact, we have as much connection with our future selves as we do with a stranger that we pass by . This future-based discussion of climate change consequently fortifies the idea that climate change is somebody else’s problem, even though our actions now will directly impact and shape the world we will be living in in the future.
Another problematic observation of how we use language is the creation of a false dichotomy between us and nature. Phrases like ‘impact on the environment’ create the distinction that the environment is separate from us, whereas the phrase ‘impact on our environment’ emphasises that we exist as a part of it . This language use cumulates in the concerning situation where climate change becomes out of sight, out of mind.
What is more, there seems to be active underreporting with regards to climate change by some news outlets. A report on American media, for example, found that an entire year of climate news coverage was lower than what was received by the British royal baby Archie in a single week .
Figure 1: Word cloud of the commonly used words related to climate change in the Guardian from 2017 to 2020. Data obtained from The GDELT Project.
Taking A Closer Look: Climate Change In The Eyes Of Oil And Gas Companies
Oil and gas companies have been among the most vigorous opponents of climate related policies, with expenditure on climate lobbying reaching up to $53 million a year . This defensive stance against climate change mitigation carries through in their annual reporting. An analysis of the corporate social responsibility and environmental reports from 2000 to 2013 highlights a few linguistic techniques oil and gas giants use to deflect having to take actions to mitigate climate change.
Preference for ‘climate change’ as opposed to ‘global warming’
‘Climate change’, while being a more scientifically comprehensive description , is a neutral term, whereas ‘global warming’ implies a direct consequence – the warming of the planet. Furthermore, the Oxford English Dictionary definition for ‘global warming’ assigns human activity as the cause, while human agency is omitted from the definition for ‘climate change’.
Downplaying the strength of scientific evidence
While scientists often use uncertainty estimates to convey their confidence levels in the accuracy of their data, companies can misconstrue this uncertainty, turning it into scepticism of the evidence presented. In phrases such as ‘the risk of eventual climate change caused by anthropogenic emission’, the use of the hedge ‘eventual’ also serves to decrease the causal relationship between emissions and climate change.
Magnifying the importance of meeting energy demand
Although companies acknowledge the importance of managing emissions, they often introduce growing energy demand as a factor of equal importance, as ‘meeting the enormous energy demand growth and managing the risk of GHG emissions are the twin challenges of our time.’ This then construes that companies need to balance climate change mitigation efforts with their need to meet increasing energy demand, which is a favourable strategy for the oil and gas industry.
By including other stakeholders such as governments and consumers when addressing climate mitigation, companies shift the responsibility away from themselves towards a shared accountability with other societal actors. This downplays companies’ responsibility to change their behaviour or even lead the change.
Nevertheless, a more recent analysis of the reports of three energy companies highlights that these companies have acknowledged that climate change poses a business risk. One company has even embraced it as a business opportunity, hinting at a positive shift in how the energy industry views climate change .
Putting Climate Change At The Forefront Again
Figure 2: Use of the phrase ‘Climate Change’ compared to ‘Climate Crisis’ and ‘Climate Emergency’ from January 2015 to April 2021 in the UK parliament. Data obtained from Hansard.
As the years pass, the negative consequences of climate change become ever more apparent. The need for us to adapt our behaviour to prevent fur ther environmental damage has been stated time and time again through protests and individual activists such as Extinction Rebellion and Greta Thunberg. The media has also taken considerable steps to change how they repor t on climate change issues, a move that has significant effects given the media’s wide reach.
In 2019, the Guardian made a climate pledge to make six changes to the language used in their reporting. These include the rebranding of ‘climate change’ to ‘climate emergency’ or ‘climate crisis’ to reflect the urgency with which we need to take action as well as replacing ‘climate sceptic’ with ‘climate science denier’ to emphasise the robustness of scientific evidence . A study of US news media content also revealed a positive shift in the language used in regards to climate change reporting. Research has found that there has been a decline in framing climate change as economically costly as well as a sharp decrease in communicating the uncertainties associated with climate science, both of which reduce an individual’s inclination to support and engage in climate action . In contrast, language conducive to climate action engagement has been on the rise. These include emphasising the economic benefits of climate action and communicating climate risk in the present tense. As American feminist writer, Rita Mae Brown says, ‘language exerts hidden power, like the moon on the tides.’ Let us be mindful of and actively use this power to make a positive change in our environment.
The proliferation of sustainability data has come at a (not so trivial) cost to data preparers (who are usually the reporting companies themselves), investors, NGOs, academia and other stakeholders like regulators and policymakers. In light of the relatively nascent nature and obscurity of sustainability disclosures, it comes as no surprise that the collection, systematization and analysis of Environmental, Social and Governance (ESG) data metrics entails significant time resources and financial expenditure.
As spending on ESG data continues to grow at an annual rate of 20%, it is projected to reach USD 1 billion by the end of 2021 . This in turn has created arbitrage opportunities for incumbents and established market players who seek to profit from limited transparency and the high barriers to entry related to ESG data provision.
With the reliance on ESG data intensifying, there are significant opportunities for lowering the costs involved in accessing ESG data – both for reporting entities, as well as for end-users of the data. With more eyes watching, further integration of sustainability metrics in financial markets would benefit the quality and impact of sustainability information. This blog explores the idea of ESG data as freely accessible information.
Using and reporting ESG data are costly exercises (for now)
In a study undertaken by the European Commission on the anticipated costs of compliance for upcoming corporate disclosures under the new EU Corporate Sustainability Reporting Directive (CSRD), policymakers expect that the annual reporting cost of such disclosures for the 49,000 European companies in scope of the Directive will amount to no less than EUR 3.6 billion, with EUR 1.2 billion in one-off implementation costs.
These rising data and compliance expenditures will fall disproportionately on smaller companies that are not as well-equipped with sophisticated corporate social responsibility (CSR) or sustainability departments, like their large counterparts.
On the flipside, as ESG becomes increasingly relevant and disclosures – more sophisticated with more companies and other market players reporting, consuming ESG data is also becoming resource-intensive. The imperative of taking ESG into account has intensified in recent years, for reporting entities and end-users alike: ESG is truly entering the mainstream. Yet, the costs of accessing ESG data have not dropped as fast as the demand for ESG data scaled up.
Open-sourcing ESG data
What if ESG data became a public good? More accessible ESG data can serve the needs of market participants towards making better-informed and sustainability-driven investment decisions. At the same time, having ESG information as a universally available public good can empower individuals and consumers to make the right choices when it comes to the products and services they buy and invest in daily.
Of course, not everyone is interested (or capable) to keep track of sustainability information for their investments or purchases. But like public companies’ standard financial information, the ease of accessing standardized company data makes a world of difference. Newspapers and other media outlets facilitate information efficiency in financial markets and the economy also because the financial data of listed companies is considered a public good.
Practically, the right technology and efficiency-saving tools can reduce the marginal cost of standardized ESG data reporting and access. While it is unlikely that such a transition can take place overnight, enabling stakeholders to streamline their sustainability disclosures, centralize reporting and optimize for standardized data access can result in significant economies of scale. Capacity-building and technology will be at the heart of a better functioning sustainability data landscape that also tackles concerns of ‘greenwashing’ and misrepresentation of a company’s sustainability credentials.
Sustainability information could fall under a ‘digital global commons’ designation, meaning that this type of data is so important for achieving our global sustainable development agenda that it should be provided and accessible for free by members of the public and the contributing community, similar to the concept of cyberspace being available and accessible to all to use. Think Wikipedia, but for ESG data.
In the words of Mayo Fuster Morell, digital global commons info tends to be “non-exclusive, that is, be (generally freely) available to third parties. Thus, they are oriented to favor use and reuse, rather than to exchange as a commodity. Additionally, the community of people building them can intervene in the governing of their interaction processes and of their shared resources.” 
Further to that, in October 2020 the European Commission adopted its new Open Source Software Strategy 2020-2023. The key objective of the strategy is the possibility to reach European-wide digital sovereignty, enabling Europe to maintain its digital autonomy and spur innovation, creativity and breakthrough technological advances.
The benefits of publicly available sustainability data
Can we consider sustainability data as a digital global commons? To optimize for the number of viewpoints and impact, there is strength in the argument for making sure that basic access to ESG data and reporting should be better accessible to everyone, from the world’s largest publicly listed companies to the smallest family-owned enterprises. This level of transparency and freedom of information and disclosure would in turn enable the more efficient flow of capital towards businesses that truly meet the criteria for sustainable investing.
ESG data has its limits and greenwashing is a real issue. Some sustainability efforts fall under the marketing umbrella to appease consumers and investors who are willing and able to pay for an ESG ‘label’. Detailed and customized ESG analysis can become complex. Knowledge of ESG data can’t be free in all circumstances, but lowering the barrier to report and access ESG information would contribute to our joint understanding of how sustainability topics can affect our economies and long-term investment decisions. A better feedback loop between sustainability data providers (or reporting entities) and end-users would help address some of the pressing challenges behind integrating ESG data. It is an ongoing process of information retrievals, corrections and updates. Technology-driven transparency can highlight those organizations that do in fact take ESG seriously – and have them set the norm for others to follow.
 These figures are additional to any EU Taxonomy related disclosure costs of EUR 1.2 – 3.7 bn in one-off costs, as well as EUR 600 – 1.500 million in recurring costs per year. Proposal for a DIRECTIVE OF THE EUROPEAN
PARLIAMENT AND OF THE COUNCIL amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting.
 Fuster Morell, M. (2010, p. 5). Dissertation: Governance of online creation communities: Provision of infrastructure for the building of digital commons.
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