Why ESG Data is Changing

Producing reliable environmental, social, and governance (ESG) data has become paramount for companies in the last few years. With it, they can demonstrate how they are reducing their carbon footprint, protecting their social capital, or complying with the booming disclosure landscape. 

Reliable ESG data helps companies identify potential risks, manage resources, and remain compliant with regulation. But it can be much more than a backwards looking tool. The most ambitious companies that we work with at Arabesque are looking to transform ESG data into a competitive advantage, producing actionable business intelligence which will set them apart from their competitors. 

The biggest hurdle to this is perhaps the most obvious. How can I ensure that I have access to reliable ESG data? What does it look like, and how can I gather it? These are the sort of questions which have, until recently, puzzled business leaders. They’re also the questions that we are answering at Arabesque. 

Looking at the first frameworks to regulate ESG data disclosure is like looking at an early map of the first railways. A hodgepodge of private enterprises, many overlapping and intertwining, suffering from a lack of unification. Today, companies have a confusing mixture of compulsory and voluntary frameworks to report against. Even if they fulfil their obligations, most reporting companies do not disclose the same data in the same way. Some are simply unaware of their obligations. 

Cutting through all this noise is crucial. Investors, underwriters, regulators (not to mention companies themselves) stand to benefit enormously from a market and supply chain greased with the oil of reliable data. But it is impossible for the vast majority of organisations to confidently gather the information required under their own steam. 

This is why companies look to the likes of Arabesque to supply global markets with transparent, accessible and coherent ESG information; to help investors respond to customer values, enable corporates to meet a growing wave of disclosure requirements, and to provide the wider market with meaningful signals that enable an informed allocation of capital.  

Our team prioritises Artificial Intelligence to help achieve this. We gather a vast amount of data; from traditional, more structured data, to a wide range of alternative sources of information such as the press, social media, or NGO activity. AI allows us to make sense of this highly complex mix of disclosed information and short-term signals. It can rationalise thousands of competing and overlapping sustainability metrics into a high-quality picture of a company’s ESG credentials. 

As the volume of sustainability data increases – in the next eighteen months we will see a slew of new regulatory requirements – it will become increasingly important for investors to work confidently with AI to make truly sustainable investment decisions. 

Customisation is now the next stage of the journey. Being able to take a detailed look at the underlying information which companies disclose, and filter through the thousands of data points to reach the specific insight which a business requires is swiftly becoming not a ‘nice to have’, but a business necessity for organisations looking to balance consumer demand with maximising returns. Arabesque’s ‘Temperature Score is just one example of this. 

Sustainability data will only become more important in years to come. The onus is now on companies to ready themselves with the tools needed to be leaders in using it.