Steering the future of ESG data coherence

In a speech ahead of COP27, Mark Carney, co-chair of the Glasgow Financial Alliance for Net Zero (GFANZ), revisited the idea of morphing the climate data landscape to better serve financial institutions and investors in meeting their climate transition plans.

His speech at the Roger Gifford memorial lecture in October followed discussions in the summer between Carney’s climate collective co-chair colleague Michael Bloomberg and French president Emmanuel Macron. Their talks centred on the potential of a steering committee that would inform the industry how best to obtain climate data and disseminate it to financial organisations as a way of accelerating the transition to a net-zero economy.

“This will be operational by this time next year and will provide consistent, accurate, openly available climate transition-related data to allow financial institutions, regulators, civil society, all stakeholders, the general public, to track climate progress,” Carney said.

The group contains representatives from major data platforms – including MSCI, Refinitiv, London Stock Exchange, and the UN – tasked with bringing together the data-handling expertise necessary for a project of the magnitude required to meet the burgeoning climate data demands.

Developing the language of data

Making sense of the data on net zero is crucial to achieving long-term goals, Lizzie Insall, senior partner at digital consultancy TPXimpact says, owing to the vast range of “sectors, government department and geographies” whose ambitions are dependent on accurate and reliable climate measurements.

As such, there is a need to develop “common measures and language that allow comparison, learning and, crucially, investment across those sectors. Uniform, centralised climate data will be key to that,” she says.

The feasibility of a truly uniform data system is questionable, however. At present, companies are encouraged to enhance the accountability of their data by signing up for initiatives such as the Global Reporting Initiative, Sustainability Accounting Standards Board, and the Global Initiative for Sustainability Ratings. While these bodies outline the criteria for certain benchmarks, a lack of comparability led to the formation of the International Sustainability Standards Board (ISSB) at COP 26 – a body tasked with establishing uniformity among ESG ratings and data providers.

Yet the current fractured ESG data landscape does not lend itself to a system based on uniformity, says Shamus O’Donnell, CEO of investor service provider Deep Pool Financial Solutions.

He says there is a need for “standards that allow measurability,” though not necessarily a fully uniform model.

“There are huge variances across the globe, and this will require differences in the standards applied. The data will need to factor these differences in to allow a usable set of results and the consumer of the data will need to benefit from such enrichment to gain a real understanding,” he says.

Overwhelming data

Another factor driving Carney’s data transformation is the inaccessibility of data stemming from the sheer volume of ESG data encountered by stakeholders. TPXimpact’s Insall says work with local government in the UK has shown that while there is plenty of data available, it is “often not the right data, or broken down in a way to make it usable”. 

“Additionally, we know that making the case for investment is often made more difficult by the use of competing measures and targets, which rather than galvanising efforts to net zero can result in soiling them,” she adds.

Likewise, Tommy Ricketts, CEO of rating agency BeZero Carbon, says accessible data is central to improving confidence in nascent yet essential markets such as carbon credits.

“This confidence can only be built by increasing access to high-quality information that allows people to make informed decisions,” he says.

To overcome this, Carney’s vision of ESG data centres on a universal point of access. Chandra Gopinathan, senior investment manager in the sustainable ownership team at Railpen, says such an approach “can make things easier”, so long as the data is “relevant, standardised and aligned to standard disclosure and alignment assessment frameworks,” such as those from the ISSB, Transition Plan Taskforce (TPT) and the Task Force on Climate-Related Financial Disclosures.

An open-source data system – one where access to the underlying software is freely available – is possible in principle, Gopinathan says, but there are challenges around the disclosure of vulnerabilities, lack of security and quality of developments, among others.

“For the system to be feasible and successful, it needs to be very well-resourced on technological capabilities and have clarity and alignment around ownership incentives and intellectual property,” he says.

Commercial solution

These factors – a need to agree on common measures and benchmarks, making the volume of data manageable, and creating an accessible system – present challenges that Carney’s corporate-backed steering committee will have to overcome. As such, there is a seat at the table for commercial parties that have the “means and capabilities to create and implement such a system,” Gopinathan says.

Yet the “platform integrity, alignment of interest and costs” will be dependent on the organisations behind the scheme, he adds, with the development of the commercial model requiring broad oversight from the industry.

As such, he is in favour of asset owners having a say in developments through collectives such as the SDI Asset Owners Platform.

Deep Pool Financial Solution’s O’Donnell says governments and regulators must have a say in the platform too, alongside financial institutions and ‘Big Four’ accounting firms. Having such names on the board provides “momentum and powerful influences” that can drive practical change.

“Once they are normalised, they become institutionalised and offer massive value to investors, and the wider community,” O’Donnell says.