Identifying and comparing the sustainability of investment targets can be difficult, which slows down the progress of sustainable investing. Collecting and distributing commensurable ESG data from companies could make sustainable investing easier.
Finance Finland (FFI) proposes that the EU establishes an ESG data register that would collect and distribute data on how well companies take ESG factors into account, and how their operations affect the environment and the society.
Timo Ritakallio, chair of the FFI Board and president of OP Financial Group, is strongly in favour of harmonised ESG reporting in the EU. “The EU should take a leading role in standardising companies’ ESG reporting. Comparable data could be collected directly from the companies and made available to the financial sector and the academic world, for example”, Ritakallio says.
A recent survey commissioned by the FFI indicated that retail investors are keen to make sustainable investments. “Investors’ growing environmental awareness must be matched with information on the sustainability of investment targets”, Ritakallio comments.
Market research by the Finnish Sustainable Investment Forum (Finsif) revealed that one of the main challenges of sustainable investing is the lack of comparable data in analysing investment targets. The use of ESG data is also very expensive at the moment. Small scale investors such as small pension funds and foundations cannot afford to access it.
“All EU countries should share a minimum-level ESG reporting model. In time, it could be evolved into a global standard. There are already several reporting practices in the market, so the model does not have to be built completely from scratch. Eurostat or one of the other EU statistical offices would be a logical choice for the register’s development and administration”, Ritakallio comments.
“To make the data genuinely available for everyone, it should be offered free of charge or at moderate price. Since the register would serve both public and private needs, the majority of its funding should come from the EU budget”, he adds.
Reporting to the register should be voluntary. The incentive for companies would be added visibility and the promotion of their reputation as sustainable companies, which is useful when acquiring funding. Funding could become more expensive for companies that are not ESG compliant. The financial sector is actively searching for investment targets with good ESG performance, and making the investing process easier could therefore make sustainable investing also more impactful.
Having ESG data available in a single EU register would save time and money of both the reporting companies and the users of the data. A public register would also improve the availability of the data for small-scale investors, researchers, and teaching.
The Finnish ESG initiative was started by the Hanken School of Economics, Aalto University, OP Financial Group and Aktia. The Finnish financial sector has continued the work in FFI’s Responsibility Committee.