Moving Toward a Sustainable Future

S&P Global Sustainable1 is a Business Reporter client.

Environmental, social and governance issues have moved to center stage as stakeholders demand more transparency from corporate sustainability plans.

Environmental, social and governance (ESG) issues have been gaining a high level of attention as it has become clear that these factors can affect a business’s financial viability. Corporate profitability may be impacted by fires, floods and other physical risks; by increasing carbon pricing policy; by unacceptable labor and human rights practices; and by conflicts of interest or scandals resulting from poor business management. The rising prominence of ESG issues and the increasing market demand for greater transparency and insight are reshaping requirements for disclosure and analytics. Customers, investors and other stakeholders are demanding to know more about companies’ ESG track records, while companies are digging deeper into their strengths and weaknesses to take meaningful action.

Increasing regulation helps move the dial

In recent years, the financial sector has seen a large number of regulatory developments around sustainable finance, encouraging banks, insurers and others to be more proactive and transparent in their efforts to support the transition to sustainable business models. The EU Sustainable Finance Disclosure Regulation (SFDR), for example, is imposing more stringent requirements on disclosures made by financial services institutions regarding sustainability risks. At the same time, SFDR is trying to help companies better understand the type of information that should be collected and reported to create more consistent and comparable measures for the most important ESG factors.

Greater insight into ESG factors helps to support portfolio optimization and capital allocation toward companies with superior ESG performance. Companies with poor performance, or little information available about their ESG activities, will be at a disadvantage. This is especially the case as investor interest in ESG is surging, fueled in part by strong performance signals from some of the biggest funds set up with ESG criteria. In addition, the size of the overall ESG debt market nearly doubled to $608.8 billion in 2020, while the value of sustainability bonds, a hybrid of green and social debt, tripled.

Access to extensive data is essential

Companies can demonstrate their dedication to the highest standards of ESG transparency, insight and action planning by directly reporting key sustainability metrics and benchmarking their relative performance on a wide range of industry-specific issues. Disclosure can be challenging, however, especially as more and more data is being requested as ESG reporting and interest continue to evolve.

S&P Global Sustainable1 is committed to enhancing ESG intelligence for the global marketplace. Over the years, it has collected, validated and standardized an enormous amount of data relating to climate change, natural resource constraints and broader ESG factors; this includes the S&P Global Corporate Sustainability Assessment (CSA), an annual survey-based evaluation of companies’ sustainability practices, established in 1999, that generates company-level ESG scores, which provide detailed ESG benchmarking insights for participants to better integrate sustainability and business strategy.

The S&P Global Sustainable1 offering also includes extensive environmental data for more than 15,000 companies, representing 98% of global market capitalization, which can be used to assess environmental costs, identify and manage environmental risks and conduct peer and portfolio analyses from an environmental perspective. Importantly, S&P Global Sustainable1 has a well-tested approach in place to fill gaps when information is not disclosed and to fix any errors that may occur to help complete the picture across financial portfolios and corporate supply chains.

Progress is being made

Fortunately, there are strong signs that more companies are assessing their current ESG position and developing strategies for improvement. Net-zero and carbon-neutral commitments remained on the rise in 2021 as companies, financial institutions and countries assert their alignment to global climate goals. In addition, the S&P Global CSA saw the strongest level of corporate participation in 2020—up 19% from 2019—with an additional 238 companies participating for the first time and generating ESG scores. It seems that disclosure is no longer simply a nice-to-have, but, rather, a necessity for companies to inform strategic innovation and attract important investment dollars.

As reporting continues to evolve and become more standardized across companies and countries, it is expected that ESG practices will become a natural part of ongoing assessments of business performance, as traditional financial analysis is today.

For more information on S&P Global Sustainable1, visit spglobal.com/sustainable1.

This article originally appeared on Business Reporter. Image credit: S&P Global Sustainable1