Impact Investing Conference

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How to fix ESG data concerns  Private Equity NewsHow to fix ESG data concerns  Private Equity NewsHow to fix ESG data concerns  Private Equity News

Impact Investing Forum 2024

London. April 24-25, 2023.

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Investors and corporations are becoming more frustrated with sustainable investing. Sustainable investing continues to attract more attention. According to the Global Sustainable Investment Alliance, there are more than 35tn dollars that take into account governance, environmental, and social concerns. This represents about a third to all professionally managed money in the world.
However, it is not clear how money managers use ESG data such as workplace safety or greenhouse gas emissions. There is no single way to report data. There is no agency that audits it. There are no requirements for how companies should collect and report ESG data.

Brian Moynihan (CEO of Bank of America) and Doug Peterson (CEO of S&P Global) discussed the topic on a panel hosted and moderated jointly by Private Equity News’ sister title Barron’s. Below is an edited excerpt of the conversation. Barron’s: At the moment, we have a variety of reporting standards. Many of them seem to be at odds with each other. How did we get to this point? What problem should we first tackle?

Brian Moynihan, First, remember why you’re doing it — to try and implement the [United Nations] Sustainable Development Goals. We want the private sector to publicly declare their progress so that all stakeholders can see it, not just their customers but also their shareholders and employees, and their communities. It was a fairly informal process. Doug and his company, as well as many other companies like Bloomberg, Barron’s, and others, have developed [ESG reporting metrics, and frameworks] over time. The problem is that you now have many, many metrics.

Doug Peterson: Organizations like ours, and others trying to analyse data, aren’t seeing it delivered consistently. Today, companies report information in their own ways. For example, 85% of companies in the S&P 500 have some kind of sustainability report. They provide information about their climate, water, and diversity, but only 15% of these companies include this information in their financial reports, or in their statutory reporting. Many of the information is self-reported. It is not standardized, making it difficult to use for financial markets. Barron’s: Can all stakeholders — regulators, advocates and NGOs — be satisfied with the same reporting standards.

Peterson: Brian was the leader of a group that defined 21 metrics at the International Business Council at The World Economic Forum last year. This gives you a solid foundation of consistent information. S&P Global now has Sustainable One. We’re collecting all the information we can and making it consistent so that we can use it for indices, ratings, research and information. It all starts with standardised disclosure.

Moynihan, International Business Council: It is 130 companies. These are large companies from different parts of the globe through the World Economic Forum. We said, “Let’s try to find a way to standardize these metrics across industries.” We asked the Big Four accounting companies to do the work and compile all the metrics for each of the pillars. We now have 100 companies that agree to disclose the same metrics as we standardize them. Barron’s: Can global standardization be achieved? Even international accounting standards can be difficult to enforce.

Peterson: The International Financial Reporting Standards Foundation, or IFRS, has financial standards for accounting reporting. They are also starting to consider ESG reporting. There are more than 10,000 global companies that issue equity and debt, and they are part of the global supply chains. The standardization you achieve for those 10,000 companies will be a model for other companies. Barron’s: Both you and President Trump have mentioned the need for collaboration between companies and governments. Brian, you urged President Trump not to withdraw the United States from the Paris Climate agreement. Bank of America was then signed. What is the role and responsibilities of business leaders?

Moynihan – Business leaders have the responsibility of creating a plan, executing it, and making that plan available for all parties, including customers, investors, employees, and society. To help our clients make the change, we will provide $1.5tn in SDG financing over the next ten years. We work with mid-sized businesses, saying that consumers or companies will require you to do this. The private sector will be the engine that propels the ecosystem forward. In fact, the private sector has been driving the ecosystem forward for five years. Standardizing metrics is one way they can do this. We spend more time actually making the metrics work and improving than we do debating how to measure it.

Peterson: This partnership is the best for both public and private. One example is the TCFD (the Task Force for Climate Related Financial Disclosure), which was led by the FSB (the Financial Stability Board) and the private sector to create standards and a framework for reporting on climate change. Here is where the two meet. As an example, I am leading a task force that supports the G-7 finance ministers to ensure they have the power to improve financial reporting and disclosure. We need to make a complete shift in the United States, to rethink our infrastructure investments and infrastructure investment to support renewable energy and a more sustainable tomorrow.

Moynihan – This last part of Doug’s statement is crucial because it is companies that will net zero and drive demand for clean energy. We invest a lot of money to create alternative energy. The metrics are: Company A declares that “This is how I will get to net zero.” Here’s my path. Investors can see it, employees can see it, customers and customers can all see it.” This is coupled with government infrastructure investment to drive the change. That’s the part that we have to connect together: The government’s infrastructure is crucial to allow the things to happen behind it. You’ll have all the demand but no one to fulfill it. Barron’s

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ESG Investing Conference