Getting ESG right without regulation is going to be an issue

Investors want clarity, public companies want regulatory guidance

Getting ESG right without regulation is going to be an issue
Steve Randall

Making investment decisions based on environmental, social, and governance (ESG) factors should be getting easier.

With investors and asset managers increasingly incorporating ESG into the equation, and corporates seemingly keen to be on the right side of history, many of both sides are frustrated about the lack of clear information.

With greenwashing providing an extra dose of risk to ESG investing, there are growing calls for regulation on how companies provide disclosures, including from companies themselves.

Corporate compliance solutions firm Intelligize asked publicly listed companies for their views and found that, while three quarters want to create positive ESG outcomes, there is lack of knowledge about  how costs affect their companies’ commitments, whether ESG-related information should appear in their financial reports, and whether their ESG reporting is even accurate.

“A recurring theme we found in our survey responses was a lack of clarity surrounding the ESG reporting process and questions about whether ESG reporting presents an accurate picture of companies’ core values,” said Rob Peters, a report coauthor and a senior director at Intelligize.

He added that companies want guidance from regulators such as the SEC.

However, even when guidance is provided on ESG, it may not provide the full picture for investors, as shown by IFIC’s recent comments on proposed standards from the CFA Institute.

Divided opinion

Around four in ten respondents felt that companies’ financial reports should include ESG disclosure, but a large share were not sure. The default position is to follow peers or use frameworks provided by non-governmental organizations.

More than 60% of respondents think their companies’ ESG reporting is at least somewhat informative. But fewer than half (49%) of respondents believe the ESG reporting accurately reflects their companies’ values, and 35% are unsure.