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    Sustainability Disclosure: on the Path of the Holy Grail?

    Stretching over a few days of high-level speeches and intense discussions, The Economist’s Sustainability Week has by now become an iconic event for the global sustainability community. It aspires to bring together industry leaders, policymakers, entrepreneurs and researchers in order to assess the state of affairs, showcase best-in-class solutions and suggest ways to rise to the present challenges. The event’s current virtual format is a blessing, allowing busy delegates to seamlessly tune in and out of sessions and revisit the most interesting ones.

    The 6th Annual Sustainability Week, held between March 22nd and 25th this year, did not disappoint, offering many highlights and well-attended webinars by prominent speakers like Larry Fink, Tony Blair and Mark Carney. Having attended the event, we bring you a few takeaways from two back-to-back panel debates on sustainability disclosures, focused on the following questions: What kind of sustainability information do investors want from companies, and how do they use it? How far have we come on the path to that holy grail, credible and standardized sustainability data?

    Eric Hespenheide from GRI lifts the discussion by reminding us that “we need to remember what the objective is.” Collecting accurate data, demanding and producing transparent sustainability reporting, however important these might be, are not the objective. They are just a means to an end. The objective is to make better-informed decisions, whether within the company, as a stakeholder or, extended to society at large, making informed policy decisions. It seems there is a need for both standardised quantitative data and a comprehensive narrative, most of the panellist agree.

    For Norges Bank IM’s Carine Smith Ihenacho, holding more than 9000 companies in the portfolio naturally means shifting the focus “from words to numbers,” she remarks. Yet historical data is by definition backwards-looking. It contains little information about where the companies are headed ESG-wise, except for a tentative trajectory. The investors, therefore, need to ask portfolio companies for more forward-looking information. In the case of Norges Bank, they ask for scenarios, carefully examining the assumptions behind those.

     

    Picking up on the necessity for more forward-looking sustainability disclosure, Paul Dickinson of CDP praises some companies’ “capacity to sell a vision,” helping investors to identify themes and solutions far on the horizon instead of chasing old stories. In a different panel, Eric Hespenheide makes a similar point about the tragedy of horizons, lamenting the way “climate first” is preventing us from focusing on other budding challenges, thus allowing them to grow into the same enormous monsters as climate change by the time they grab our attention.

    Naturally, a discussion on sustainability data and reporting cannot pass on the usual complaints. Companies feel increasing pressure from various stakeholders, each demanding different sets of information. Investors are hardly satisfied with the quality of data and the timeliness of reports. The need for global standards and integrated reporting is glaring. The panellists agree, however, that it is not a viable excuse to stall. Both investors and companies should use best-practice solutions now instead of waiting for the perfect standard to appear, miraculously.

    Although disclosure regulation and taxonomy have lately dominated the sustainability news flow in the EU, these are hardly even mentioned here. Focus is more on the work of the five leading sustainability and integrated reporting organizations – the Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP), Climate Disclosure Standards Board (CDSB), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB). Recognizing the need for an overarching comprehensive solution for corporate reporting, these five recently announced their intention to join forces.

    Anyone tuning into the discussions during Sustainability Week would applaud the initiative.

     

    Julia Axelsson
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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