ESG Transparency: Balancing Proactive and Reactive Reporting

Complementing ESG rating participation with an effective ESG Equity Story
ESG Transparency: Balancing Proactive and Reactive Reporting
Publ. date 13 Nov 2020
Even though the surge for consolidation of ESG ratings further accelerated in 2020, companies are still stating to be overwhelmed by the sheer volume of ESG information requests they receive from capital markets. And as more than $1tn in total assets under management in funds are now abiding by ESG principles, investors’ needs for credible ESG information are not likely to slow down. Companies stand to benefit from taking a balanced approach between proactively driving their ESG Equity Stories forward while reactively responding to the ESG ratings that are most relevant to them in terms of richness and reach.

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Being pro-active and reactive in meeting investors’ ESG information needs 

Concluding from the ESG Equity Stories Benchmark that Finch & Beak will publish later this year, investor audiences are still underserved by how corporates are proactively accommodating them in their ESG data quest. This underlines the continued relevance of ESG ratings as a standardized method where companies can be responsive to the ESG needs of capital markets, while also receiving a third-party assessment of their performance. 

Therefore, companies may on the one hand find it useful to consider ESG ratings’ richness and reach in order to determine which are the most relevant rankings in order to make an informed decision about allocating resources and making an effort to participate.  

On the other, they can more pro-actively respond to investors’ information needs by further  incorporating ESG information into their mainstream IR channels such as the annual report, quarterly results and presentations for capital market days. As an illustration, only 24% of the assessed companies in the ESG Equity Stories Benchmark were found to publish a stand-alone document that consolidates information appeals to investor’s ESG requirements.  

Dow Jones Sustainability Index: Increased Richness and Reach 

S&P Global’s acquisition of SAM’s ESG Ratings and ESG Benchmarking Business, completed in January 2020, has not only resulted in a wider reach of data, but now also increased level of richness that companies receive from their benchmarking scorecards. Earlier this month, it was announced that in this year’s outcomes of the Corporate Sustainability Assessment (CSA), assessed companies will be provided with access to their own question-level scores. This is stated to ‘provide additional granularity to support deeper benchmarking activities, helping companies formulate appropriate strategies for a sustainable future’. 

What are question-level scores?

'Approximately 100 questions are asked across on average 23 criteria, with each question containing sub-questions (answers to which are called data points). These data points are aggregated to create question-level scores, providing an additional layer of granularity and valuable insights, while keeping the underlying details confidential when the data points are not publicly available.’ 

Source: SAM/S&P Global 

 

Since the acquisition, S&P Global already set a transition in motion to increase use of ESG data across its services. This was in particular demonstrated by the wider use of CSA data including criterion-level scores in S&P Global Market Intelligence’s Xpressfeed™ since May 2020. The new announcement in November adds more granularity to data that is available for the capital markets, as S&P Global plans to incorporate company question-level scores and publicly available data points through the S&P Global Market Intelligence platform in the first half of 2021. 

However, increased transparency is not just limited to clients of S&P Global’s data platforms, but also wider stakeholder audiences. The publication of the Sustainability Yearbook 2020 in January was already a major step towards more transparency, publishing for the first time the total SAM ESG Scores for all companies included in the Yearbook, accompanied with a website where all rated companies can be consulted by anyone – for free. This also includes companies that are assessed based exclusively on publicly available data. 

Balancing reporting efforts with proactive and reactive disclosures 

In conclusion, companies stand to benefit from taking a balanced approach. On the one hand, by consciously and proactively integrating ESG information to specific investor audiences in their IR communications, orchestrating their ESG Equity Story under their own direction. On the other, making an educated decision to dedicate resources in responding to ratings that are most relevant to the company in terms of richness and reach. By combining the two, there is a synergy to be achieved that enables the company to provide capital markets with a complete picture of its ESG performance while benefiting from feedback from an outside-in perspective as well. 

Ready to improve your company's ESG benchmark performance? 

With more than 15 years of experience in Dow Jones Sustainability Index support, Finch & Beak is Europe’s leading expert in assisting companies with their submission to ESG benchmarks and using them as an engine to accelerate sustainability performance. Interested in our support? Please download the service description in the download section or contact Josée van der Hoek, Director, at josee@finchandbeak.com or call her at +31 6 28 02 18 80. 

About Nikkie Vinke

Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com

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