Brace for a riptide of ESG disclosures

Corporate issuers may have to report on 32 different impact indicators as early as March next year

Brace for a riptide of ESG disclosures

As the wave of interest and assets invested in ESG continues to swell, so does the demand for data to allow proper integration. And for corporate issuers worldwide, the pressure to close gaps in their disclosures is about to get more intense.

In its recently published ESG Trends for 2021 report, MSCI noted that corporate issuers stand to face a host of new regulatory ESG reporting requirements.

For signatories to the UN Principles of Responsible Investing (PRI), that reality hit this year as requirements from the Task Force on Climate-related Financial Disclosures became mandatory. Over the next few years, MSCI said, those requirements are set to be required in the U.K. and New Zealand.

The European Union’s Sustainable Finance Disclosure Regulation (SFDR), it added, could present a slew of demanding disclosures. If approved in its current form, SFDR would require investment institutions to report on whether companies within their portfolios operate in or around areas of high biodiversity value. Data on gender pay disparity, as reflected by how much companies pay their male versus their female employees, will likewise be needed.

“The last we checked, only a few MSCI ACWI IMI constituents reported all of the 32 datapoints needed to fulfill the draft entity-level SFDR requirements,” MSCI said.

Based on data of those constituent companies as of November 12, the firm found that fewer than 10% of those companies reported data for 14 out of the 32 required datapoints, including:

  • Deforestation;
  • Water emissions;
  • Untreated discharge of waste water;
  • Processes and measures for preventing trafficking in human beings;
  • Operations and suppliers at significant risk of incidents of forced or compulsory labour; and
  • Cases of insufficient action taken to address breaches of standards of anti-corruption and anti-bribery

Six of the metrics had a corporate reporting rate between 10% and 25%, while seven metrics were reported by 25% to 50% of MSCI ACWI IMI constituents. Only one SFDR measure, board gender diversity, saw a near 100% reporting rate across all the constituents.

On the bright side, MSCI said corporate issuers have been striving to do better on ESG disclosures. Comparing contents of 2015 and 2020 earnings calls from the 100 largest MSCI ACWI index constituents by market cap, it said the number of companies mentioning “sustainability,” “environmental” or “climate” went from fewer than 20 to more than double in five years. And while just one sixth of MSCI ACWI members proactively contacted MSCI to verify their ESG data and ask about their ratings in 2015, more than half have done so in 2020.

“From where we sit as intermediaries between investors and corporate issuers, it’s clear that companies are stepping up their game,” MSCI said.


Follow WP on FacebookLinkedIn and Twitter