As part of a series of articles on ESG disclosure, Trucost describes the importance of accurate ESG disclosure for reporters and readers.
By the time this blog is up, some seasoned ESG reporters in Southeast Asia will have published their sustainability reports; another group will be finalizing their reports; while the rest will still be in the process of preparing their disclosures. For the latter group, my advice to you is not to rush, start on the right foot, and prepare accurate disclosures.
Many first-time reporters are frustrated by the amount of new and sometimes unfamiliar ESG metrics they need to start monitoring. While some stock exchanges, such as SGX, HKEX, and Bursa Malaysia, have suggested specific materiality and reporting frameworks to streamline the process, many companies still struggle to understand and adopt the concepts. This often results in companies inadvertently publishing inaccurate data in their reports. In return, stakeholders who rely on these ESG data for decision-making suffer from misinformation.
In fact, inaccurate reporting also occurs among more seasoned reporters. Taking greenhouse gas (GHG) emissions disclosure for example, Trucost research found that, on average, 7% of companies underreport GHG emissions globally. If a power producer in Singapore affected by the new carbon tax made the same mistake, the investment community could be misinformed about the company’s financial exposure.
An accurate disclosure reflects well on a company’s governance, such as the internal data collection and reporting system that is in place. Plus, with an accurate disclosure, companies can confidently make important business decisions based on the information gathered. For example, a company can develop a reliable benchmark and establish quantifiable targets.
For readers of the sustainability report, such as investors, shareholders, and regulators, an accurate disclosure allows them to fairly assess the company’s performance. Investors and shareholders can draw trends, make their own analyses, and inform capital allocation decisions. According to the Global Sustainable Investment Review 2016, more than a quarter of all professionally managed assets were managed under responsible investment strategies, an increase of 25% since 2014. Finally, regulators can also rely on the information to set a country-wide target or policy.
As an ESG analytics firm, Trucost integrates reporters’ sustainability information into our research to develop essential intelligence for businesses such as investors, asset managers, and corporates.
How Can Companies Report Accurate Data?
Companies can ensure that they report accurately by always asking whether their data is representative and reliable: Can I rely on this data? Can I make business decisions based on this data?
One of the ways Trucost can help companies achieve this is by adopting a consistent reporting methodology based on best practice guidelines and standards.
Selecting a consistent reporting or accounting methodology is also important because many ESG metrics are derived information, with multiple acceptable reporting methodologies. The WRI/GHG Protocol, for example, accepts four different accounting methods to estimate Scope 3 GHG emissions from purchased goods and services. Another example is the injury frequency rate, for which there are two acceptable formulae: rate of occurrences of injuries can be measured over a period of 1 million working hours (Singapore/UK) or over 200,000 working hours (U.S.) These methodologies also provide guidance to reporters on data collection and advice on alternative approaches when preferred primary data is not available. Hence, consistency adopting a reporting methodology can ensure not only accuracy but also comparability of data.
Preparing an ESG or sustainability report for the first time is not easy. It requires time, investment, and resources to establish a solid foundation. However, if companies can start on the right foot and ensure the right information is collected, both companies and readers stand to benefit from the accurate reporting.