ESG data as capital for sustainable development

Identifying and comparing the sustainability of investments can be difficult, slowing down the progress of sustainable investing. The positive and negative sustainability impact of activities must be made visible by measuring them with harmonised indicators. “What is measured is also taken into account when decisions are made”, pointed out MEP Sirpa Pietikäinen in the ESG Data Webinar held on 11 June.

The webinar Pietikäinen attended was collaboratively organised by Finance Finland (FFI), Hanken School of Economics, Finance Denmark and Finance Norway. The topic of discussions was the application potential of ESG data in promoting sustainable development. ESG – short for environmental, social and governance – measures how well companies take ESG factors into account, and how their operations affect the environment and the society.

Several legislative projects that promote sustainable finance have been completed in the EU over the last year. Pietikäinen said she hopes the Commission’s renewed Sustainable Finance Strategy will involve a comprehensive approach to corporate disclosure, credit ratings, and banking sector regulation.

Lars Müller, the Commission’s policy officer and directorate-general for environment, fleshed out Pietikäinen’s point on the need to measure and value sustainability factors to make them visible in decision-making and the economy.

“Although there has been an increase in ESG reporting, most of it is about policies and targets, not the performance of individual companies. Genuinely comparable sustainability data requires robust measurement of the impact of the companies’ activities”, said Müller.

According to Müller, measuring the impact alone is not enough to effect positive change. We need to understand causalities and dependencies to know how we can improve our actions. ESG data needs to be valued so that it can be used as a metric equal to companies’ financial figures.

Directorate-General of the Commission’s department for financial stability and capital markets Martin Spolc noted that their ambition was to consider sustainability risks through the aspect of double materiality. This means that the materiality of sustainability factors is considered from two important perspectives: the impact of climate change and environmental risks on the company but also the impact of the company’s activities on the environment and climate.

“It is important to go beyond climate and go into the social and governance dimensions of sustainability”, Spolc said.

FFI has proposed that the EU should establish 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.

Further reading: ESG Data Webinar presentation materials