ESG Data Is All Over the Place. How to Fix It, From 2 Who Are in the Know. – Barron’s

How these money managers use ESG data, such as greenhouse gas emissions or workplace safety, is a scattershot process, however. There is no single framework for reporting data; there is no one agency that collects or audits it; there is no requirement as to how companies are to collect and report ESG data, if at all.

When Calvert Investment Management & Research prepares the Barron’s ranking of the most sustainable companies, it looks at more than 230 key performance indicators drawn from six primary vendors, plus other sources for industry-specific information. This method of reporting and disseminating ESG data isn’t, well, sustainable. 

Two leaders on this topic—Brian Moynihan, CEO of Bank of America , and Doug Peterson, CEO of S&P Global—discussed this issue on a panel hosted by Handshake, an ESG advisory firm, and moderated by Barron’s. An edited excerpt from the conversation follows.

Barron’s: We currently have a hodgepodge of reporting standards, many of them seemingly at odds with one another. How did we get here? And what problem do we need to tackle first? 

Brian Moynihan: The first thing to keep in mind is why we’re doing this—to try to implement the [United Nations’] Sustainable Development Goals. Also, we want to get the private sector to declare how they’re making progress, so that all their stakeholders can see it—not only their customers, but their shareholders, their employees, their communities. It has been a relatively informal process. Doug and his company, and many other companies, including Bloomberg, Barron’s and others, have built [ESG reporting metrics and frameworks] over the years. But the problem is now you have many, many metrics. 

Doug Peterson: Organizations like ours and others that are trying to analyze the data, are not seeing it delivered in a consistent way. Companies today report information in their own way. As an example, in the S&P 500, 85% of the companies have some sort of a sustainability report. They provide information about their climate, their water, their diversity inclusion—but only 15% of those companies actually include that information in their financial reports or in their statutory reporting. A lot of the information is self-reported. There’s not standards around it, which makes it much harder to use for the financial markets. 

Can the needs of all stakeholders—investors, regulators, advocates, NGOs—all be satisfied with the same reporting standards? 

Peterson: Last year, Brian led a group at the International Business Council at the World Economic Forum, and defined 21 metrics. When you add that to others that are being looked at by groups like the Sustainability Accounting Standards Board, or SASB, this gives you a foundation of consistent information. S&P Global now has a group called Sustainable One; we’re gathering all of the information we can get, and we’re making it consistent so we can use it to build indices or ratings or research and information. But it really starts with standardized disclosure.

Moynihan: The International Business Council is 130 companies, very large companies from all different parts of the world through the World Economic Forum. What we said is, let’s try to figure out a way to standardize these metrics across industry. We asked the Big Four accounting firms to actually go out and do the work and pull together all the metrics on each of the pillars of the SDGs. As we standardize those metrics, we now have 100 companies agreeing to disclose [in the same way]. To Doug’s earlier point, there’s no informality left; this is actually in the annual report. 

Is global standardization achievable? Even international accounting standards are tough to enforce. 

Peterson: There’s a group called the IFRS, the International Financial Reporting Standards foundation; they have financial standards for accounting reporting, and they’re starting to look at ESG reporting. There’s more than 10,000 global companies that issue debt and equity and are part of the global supply chain. If you get that kind of standardization for that 10,000, the other companies will start to follow. It really starts with getting the largest global companies on a single standard of reporting. 

You’ve both mentioned a need for a collaboration among companies, and governments. Brian, you urged President Trump to remain a part of the Paris Climate accord, and when he pulled the U.S. out, Bank of America became a signatory itself. What exactly is the role of business leaders, and what is the role of government, in setting standards around sustainability reporting?

Moynihan: The role of business leaders is to lay out a plan, start executing on that plan, and make that plan able to be assessed by all the relevant parties—investors, customers, employees, and society. We will do, over the next decade, $1.5 trillion of SDG financing, to help our clients make the transition. We work with our midsize companies, saying, consumers or companies are going to require you to do that. The private sector will drive the ecosystem forward. That’s why, in the five years since Paris, frankly, you’ve seen major private sector movements—and we need to have governments enable some of those movements. And one of the ways they can enable it is by standardizing metrics. So, we spend more energy actually doing the work to make the metrics come true and improve, than we do debating the perfect way to measure something.

Peterson: This is ultimately the best opportunity for a public/private partnership. One example is the TCFD, or the Task Force for Climate Related Financial Disclosure, which has been led by the FSB, the Financial Stability Board, along with the private sector to come up with standards and a framework for climate reporting. This is where we can see the two come together. For example, I’m leading a task force to support the finance ministers of the G-7 with a way they can bring their power behind financial reporting and disclosure. 

In the United States, we need a major infrastructure investment in our energy grid; in our power grid, in energy generation; in our airports; in our air-traffic controller system; we need to find ways to build the infrastructure for electric vehicles. There’s a whole change that we need to make in the United States to rethink our infrastructure and our infrastructure investment, so that it will also support renewable energy and a more sustainable future.

Moynihan: That last part of what Doug said is critical, because what will drive the demand for that clean energy is the commitments by companies to net zero. We do a tremendous amount of financing to create more alternative energy. So, the metrics: Company A declares, “This is how I’m going to get to net zero. Here’s my path; investors can see it, employees and customers can see it.” That pairs with government investment in infrastructure to drive the change. And that’s the piece that we’ve got to link together: The government’s infrastructure [building] is critical to enable the thing to happen behind it. Otherwise, you’ll have all this demand and nobody to fulfill it.

Thanks very much, gentlemen.

Write to Beverly Goodman at beverly.goodman@barrons.com