Evolution of ESG Reporting Frameworks
In response to increasing investor demand for non-financial information from companies, a number of sustainability accounting frameworks have evolved to improve standardized disclosure of environmental, social, and governance (ESG) information. These fram
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Abstract In response to increasing investor demand for non-financial information from companies, a number of sustainability accounting frameworks have evolved to improve standardized disclosure of environmental, social, and governance (ESG) information. These frameworks have created more consistent, readily available, and easily interpreted information for investors to assess the sustainability impact of capital allocation choices. The data that is easy to collect and disclose is, however, far less valuable than information that must be gleaned through complicated processes, extensive due diligence, collaborations with subject-matter experts, and serendipitous insights. ESG frameworks thus face a difficult trade-off between standardized information that is widely demanded and cheaply supplied versus nuanced and esoteric information required to form the basis of strategies capable of delivering market outperformance. Investors seeking ESG-derived alpha must thus look beyond these standardized data sources and frameworks for their deeper and more idiosyncratic analyses. Keywords Global Reporting Initiative · Climate change exposure · Sustainable investing · UN Principles for Responsible Investment · ESG reporting · Carbon disclosure · Corporate sustainability strategy · ESG metrics · ESG-derived alpha · Impact investing · Impact reporting
S. Bose (B) Columbia University, New York City, NY, USA e-mail: [email protected] © The Author(s) 2020 D. C. Esty and T. Cort (eds.), Values at Work, https://doi.org/10.1007/978-3-030-55613-6_2
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Investors, along with a broad range of other stakeholders, increasingly demand disclosure of non-financial information beyond that which is currently available in financial statements. Many investors believe in the societal and private value of integrating environmental, social, and governance (ESG) considerations into financial decision-making as articulated by the UN Principles for Responsible Investment. Others harbor a narrower concern to generate financial outperformance through the pursuit of ESG alpha. In addition, modest pressure from some regulatory institutions to analyze the risks of climate change and extreme weather on corporate balance sheets has boosted investor interest in greater disclosure on the impact of global climate change trends on corporate assets and supply chains. There is thus considerable interest in revising accounting and disclosure frameworks to track measures of non-financial performance and incorporate analysis of climate change-related risks and opportunities. To organize and render consistent the diversity of non-financial information potentially available, a number of sustainability accounting frameworks have evolved over the last quarter-century. Consistent, easily available, and easily interpreted ESG metrics are an essential requirement for any investor effort to measure the impact of capital allocation choices on the natural and social ecosystem. The work of sustainability accounting frameworks to render precision and inter-operabil
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