By George Ralph
In November, at the UN’s COP26 climate summit, the International Financial Reporting Standards Foundation (IFRS Foundation) — which develops and promotes international accounting standards — is set to launch a global Sustainability Standards Board. Experts believe that Governments will adopt the standard and that in turn will pave the way for ESG reporting that is more streamlined and far easier to execute and deliver on.
Erkki Liikanen, Chair of the IFRS Foundation Trustees delivered a speech last month saying “Sustainability reporting is a very broad discipline, ranging from jurisdictional requirements for companies to report against specific public policy objectives to investors’ need for global comparability of sustainability-related financial disclosures. These all are important. The focus of IFRS is to meet the information needs of investors. There is a path to global sustainability standards if we, on the one hand, can create a global baseline of sustainability-related disclosures to facilitate comparability for investment decision making and, on the other, work with jurisdictions to ensure compatibility between this global baseline and their own initiatives.”
We have as an industry, for some time, been grappling with the best solution for harnessing, reading and reporting on ESG data. Investors are keen to have their investments aligned with their personal beliefs and as investor demographics shift there is a greater focus on ESG. According to the FT, sustainable investing is an interest to around 27% of UHNW individuals, rising to 49% of the same type of investor whose age is under 40. Currently, ESG data is not standardised so depending on strategy, managers are left to do their own research and integrate that with third party data. The third party data in turn, depending on the provider, is based on different methodologies for assessing companies as well as country EGS risk ratings. Increasingly managers are also asked to provide climate related data when reporting on their portfolios. This can be expensive and where there are gaps in the data, modelling is required in order to estimate carbon footprints or the carbon intensity of certain products. This is going to be even more relevant since last week’s announcement from the European Commission of their intended emission reduction strategy between now and 2050 which has created it own waves across manufacturing.
With the above in mind, the IFRS Foundation’s announcement ahead of COP26 delivers a positive message, but there is a long way to go. Achieving policy objectives across global jurisdictions by leveraging international agreements to deliver consistency and transparency to global capital markets is a mammoth task. It relies on Governments setting out clear policy frameworks on which companies can work with to build their own business models. The information made available to investors to make assessments and investment decisions requires an international standard for quality and the transparency of the information.
We have been streamlining data solutions for some time. Digital transformation, taking manual tasks and automating them for efficiency, has allowed managers to embrace cloud technology and data warehousing to store both research and client data in a secure and efficient way. Centralised data dashboards, often built as a client specific platform, allows managers to access their data and get a 360 degree view of their data landscape. By standardising ESG reporting data, the ability to research, view and review investor and regulatory reports will provide managers with next level information to assist with investment decision making.