While more investors and asset owners are starting to recognize the potential of ESG investing, the significant challenge remains in the lack of data standardization. At the moment, numerous investors face challenges in accurately assessing a company's environmental, social, and governance (ESG) performance due to the absence of standardised ESG information. Research conducted by the Institute for Energy Economics and Financial Analysis highlighted the significant lack of unified objectives and standards in ESG ratings across countries and industries. ESG experts emphasise that comparing ESG performance across companies remains problematic due to the wide array of diverse methodologies, metrics, and weightings available. Consequently, investors find it arduous to make well-founded and informed decisions in this complex landscape. However, being able to analyse and comprehend a company’s sustainability practices is a must. In the next section the article will discuss the advantages of data standardization for your business.

1- Identify differences, risks and opportunities for companies

The lack of standardised ESG data is an significant threat for asset managers to be able to analyse a company’s performance regarding ESG criteria. As the investment decisions are neither comprehensive nor comparable, hindering the ability to gain the true picture of a company. In the absence of a standardised and systematic process based on robust science, risks have the potential to slip through the cracks and remain unnoticed until they escalate into significant problems.

2- Make data comparable thanks to standardisation

ESG rating providers, like MSCI ESG Ratings and Sustainalytics, typically employ distinct sourcing processes and scoring methodologies. Consequently, the ESG scoring of the same company can vary significantly, making it complicated to understand what the collected information means. Moreover, a company’s sustainability report does not guarantee its transparency as often information is missing.

3- Clarify your expectations & Measure and evaluate your portfolio

Navigating compliance with ESG standards is a highly intricate journey given the proliferation of standards, legal frameworks, initiatives, and the numerous foreseeable changes. This complexity poses significant challenges for companies, as they must first determine the appropriate reporting aspects and subsequently effectively communicate this information to their stakeholders. By implementing standardised procedures, organisations can facilitate a clear understanding of when, how, and what to report regarding their sustainability efforts. This standardisation not only clarifies the expectations imposed upon them but also empowers companies to assume greater control over their sustainability journey.