Financial Services ESG Reporting: Data Integrity Leads the Way

Pat McCarthy, CRO at Precisely


As the need to create and track environmental, social, and governance (ESG) initiatives mounts, business leaders are under increasing pressure to ensure they are compliant with local and global regulations. However, ESG rules and directives are not always straightforward to navigate. Despite recent advancements in reporting processes Finance sector, a recent survey has found 41 percent of finance leaders admit that their current ESG reporting would not stand up to basic assurance standards.

For financial institutions to create, achieve, and report on ESG targets, they require data that has integrity, which means the data is accurate, consistent, and has context. As data is one of the most important factors that enables gaining insight, tracking metrics, and making strategic decisions, it is essential that organisations in the finance space prioritise data when it comes to reporting on ESG practices.

Modern business practices demand greater transparency

Increasing global public concern has pushed ESG initiatives up the strategic agenda for many organisations over the last few years. Indeed, shareholders, investors, insurers, and other stakeholders have long required risks and activities that could materially impact a company’s financial performance to be disclosed. But now, there is a growing realisation that a company’s ESG-related risks and impacts are material issues of equal importance.

According to the EY survey, 78 percent of investors want companies to focus on ESG activity, even if it negatively impacts short-term profits. Almost all investors surveyed (99 percent) agreed that ESG reporting is a crucial part of their investment decision-making, but three quarters (76 percent) feel that organisations are ‘highly selective’ about the information they provide, and almost nine in ten (88 percent) hold the view that companies only disclose when they are forced to do so.

Patrick McCarthy

With this in mind, many regulators are now tightening ESG rules to crack down on inaccurate climate-friendly claims by companies and products to attract investors. In fact, the Financial Conduct Authority (FCA) recently stated in a letter to ESG benchmarks compilers that a preliminary review had shown that the quality of their disclosures was poor. This comes after instances of compilers not providing sufficient detail and description of the ESG factors considered in their methodologies.

Although there are no specific UK sanctions for those found guilty of so-called “greenwashing”, reputation is a crucial factor for business leaders. To maintain trust and to avoid enforcement action or complaints, business leaders need to ensure no misleading statements or ESG-related statistics are issued.

Currently, in an attempt to comply with regulations, many organisations attempt to derive ESG insights via their existing data infrastructure. However, one of the key challenges with this approach is that data tends to live in silos, is incomplete, unstandardised, or lacks the detail required to make it fit for purpose. This is not sufficient for the thorough level of reporting required by companies, their stakeholders, or by increasingly stringent ESG regulations.

Why data integrity is essential for trustworthy ESG reporting

To be able to draw meaningful ESG insights and set appropriate targets, organisations need to have trustworthy data. By having a foundation of data integrity in place, businesses can make strategic decisions about their ESG initiatives based on data that is accurate, consistent, and contextualised – and therefore trustworthy.

As part of this, businesses need to invest in people, processes, and technology that combine data integration, data governance and quality, location intelligence, and data enrichment capabilities. This allows companies to establish a base of high-integrity data on which confident, strategic decisions can be made across the entire organisation. In turn, they will also have the insights needed to ensure the ESG initiatives they set for themselves are successful and sustainable.

Accurate reporting to attract investors

Once financial institutions have established a foundation of data integrity, they can be sure they are making important decisions based on data they can trust, which will benefit the wider business and, ultimately, help improve the bottom line.

Further, companies will also be better positioned to report on and demonstrate to investors how they are handling ESG goals and challenges. One example of this can be seen with diversity and inclusion initiatives, which fall under ESG. Investors will typically want to see up-to-date metrics on an organisation’s hiring process, as having a diverse workforce can drive better outcomes and enhance business growth.

Ultimately, creating and measuring ESG initiatives has shifted from a ‘nice to have’ to a ‘must have’ in recent years. More than ever before, companies require trustworthy data to make confident decisions, set goals, and track the progress of new initiatives. If companies aren’t already investing in the integrity of their data, they are already behind the curve and any new ESG regulations introduced will only widen that gap.


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