Avenues of Acquiring ESG Data
ESG is a relatively new concept, and a major concern that has arisen is the relative lack of available ESG data on firms, and investors are not sure how to evaluate these firms. However, the availability of information has improved substantially since the birth of ESG, and is continually progressing. What are the current methods of acquiring ESG data?
One such company that has immensely helped with the disclosure of information is the Global Reporting Initiative (GRI), which launched the first version of their GRI guidelines in 2000.
GRI is an independent, international organization that provides a set of standards for sustainability reporting, and essentially acts as a global common language for firms to communicate their impacts. Founded in Boston in 1997, their focus was to create the first accountability mechanism to ensure companies adhere to responsible environmental conduct principles, which was then broadened to include social, economic and governance issues. The GRI guidelines consist of the Universal, Sector, and Topic standards, and ultimately facilitates a more trusting relationship between a firm and its investors, and society.
An organization that is more involved with sector specific reporting is the International Integrated Reporting Council (IIRC).
The goal of the IIRC is to improve the quality of information available to providers of financial capital, enhance accountability and stewardship, and support integrated thinking and decision-making. The IIRC publishing framework is formed on the basis of the International Financial Reporting Standards (IFRS). Overall, the process for developing these standards follows due process, which is outlined in the IFRS Constitution. The underlying principles of due process include transparency, full and fair consultation, and accountability. The IFRS adheres to these values by inviting stakeholders all over the world to contribute ideas and provide feedback, as well as publicly broadcasting their consultations. New and existing standards are jointly discussed and deliberated on by the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). The IASB is in charge of the IFRS Accounting Standards, which establishes how a firm should prepare its financial statements. The ISSB is in charge of the Sustainability Disclosure Statements, which declares how a company should disclose information on sustainability related factors that may generate or decrease company value in the immediate or distant future. Together, they finalize and adapt the IFRS standards that are so essential to the success of the IIRC reports.
Today, more than 80% of the world’s largest corporations use GRI standards, and IIRC reports are used globally in more than 75 countries. The methods of acquiring ESG information are still far from perfect, but their influences are formidable nonetheless.