Skip to content

28 January, 2023

Subscribe Advertise About Us
  • My Account
  • Register
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
    • Categories

      • View All
      • Board Moves
    • stakeholder governance

      Threat to stakeholder governance from Twitter sale ‘overstated’

      Academics and experts argue stakeholder governance will always come second while the law puts the...

    • Davos resilience News round-up: this week in governance

      Lessons from Davos; companies risk sliding back on ethical practices; economics affects everyone; Sir John...

    • audit reform UK Audit reform in the UK risks ‘losing momentum’

      The Financial Reporting Council still awaits the proposed new statutory powers that would allow it...

  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • climate litigation

      Climate litigation: how 2022 will shape 2023

      This past year saw a rise in climate litigation, with a focus on the commercial...

    • value whistleblowing

      Why we need to value whistleblowing

      Encouraging staff to speak up and stop harm can reduce legal and reputational risk—both for...

    • HR corporate trust

      HR: How to build employee trust in corporate culture

      The right HR director is essential to lead on a culture that gets the best...

  • Comment
      • View all
    • A week of business moving to the centre of human rights

      A week of events signals the initiatives underway to have companies play a central role...

    • audit reform IIA Why we need audit reform right now

      There is an "urgent need" for reform to the audit landscape as well as internal...

    • climate change energy crisis Sustainability and climate change: the other energy crisis

      The world is addicted to cheap energy. We need to admit this and have the...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • Board priorities 2023 Board priorities 2023: tact, trust and transparency

      We asked key figures what would help boards this year. The answers ranged from 'smarter...

    • Group of investors/shareholders in glass building Climate issues likely to figure prominently at next year’s AGMs

      A recent webinar heard that say-on-climate voting is expected to rise, while ESG remains a...

    • NEDs role NEDs ‘needed more than ever’ in times of uncertainty

      The non-executive director’s role is to both challenge and listen to management, agreed the panel...

  • Careers
      • View all
      • Selection
      • Board Moves
    • NED recruitment News round-up: this week in governance

      Your country needs NEDs; governance does not compute; financial firms get more women on board;...

    • HR corporate trust HR: How to build employee trust in corporate culture

      The right HR director is essential to lead on a culture that gets the best...

    • powerful CEOs Boards want powerful CEOs in tough times

      Single-minded chief executives have greater staying ability when business conditions are uncertain, research finds

  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Corporate & Advisory Services
    • Edelman Trust Barometer 2023

      2023 Edelman Trust Barometer

      The report is the result of the Edelman Trust Institute's research, which sampled more than...

    • Sophos 2023 Threat Report

      Barriers to entry for would-be cybercriminals are lower, with tools and tactics becoming available to...

    • The C-Suite Outlook 2023: On the Edge

      The Conference Board 2023 C-Suite Outlook survey reveals the events that C-suite executives see as...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Selection
    • Board Expertise
    • finance
    • Technology

New approach aims to improve transparency of ESG information

by Gavin Hinks on May 24, 2019

Fund manager State Street claims its new scoring system, dubbed “R-Factor”, will help ESG information “become an integral part of the financial system” by meeting the needs of both investors and companies for a transparent scoring methodology.

wind turbines, ESG

Image: Blue Planet Studio/Shutterstock

Environmental, social and governance (ESG) investing is one of the fastest growing areas of investment management—experts believe it could almost double over the next five years. But the problem has always been the provision of ESG information from investee companies. Step forward State Street Global Advisors to break the deadlock.

State Street, a fund manager with a hefty $2.8bn under its control, has developed a new scoring system that it claims not only helps investors but also aids companies to boost their ESG (environmental, social and governance) scores.

In a report, State Street says that its new scheme, dubbed “R-Factor”, is “the change needed for ESG to become an integral part of the financial system”.

That is a big claim, but it has been clear for some time to many in the sector that ESG monitors are in need of a shake-up.

Research has revealed there may be as many as 250 products available that “rate, rank or index” companies based on ESG factors. However, there is little standardisation of the information they use, how the information is reported, or the materiality criteria applied.

Barriers to integration

Despite this confusion, fund managers have been allocating capital on the basis of ESG performance in ever-increasing volumes.

Earlier this week asset managers at a conference hosted by MSCI, an index provider, estimated that that the global share of assets based on ESG principles would double, from the current 25% of assets, to 50%, or more, in the next five years.

This drive is boosted by organisations such as Principles for Responsible Investment (PRI), a UN-sponsored campaign aimed at persuading investors to select their investments “responsibly”. PRI has attempted to set best-practice principles for ESG investment and its integration into investment approaches.

But after surveying 1,100 investment professionals it found the “main barrier” to ESG integration was “a limited understanding of ESG issues and a lack of comparable ESG data”.

Investment managers know there is information available “but advances in quality and comparability of data still have a long way to go”. That’s an issue if you’re trying to allocate hard-earned savings of pension fund holders.

State Street’s R-Factor scheme melds methodology used by the Sustainability Accounting Standards Board with data collected by four major index providers (Sustainalytics, ISS-Oekom, Vigeo-EIRIS and ISS-Governance).

The process also draws on national governance codes, where they apply. Using multiple data sources means information gaps are filled, says State Street, and “reduces potential bias” in data gathering.

The scores drawn from the data are then shared with boards during engagement. In case studies provided by State Street, a company may be presented with as many as 26 different metrics that it can then work on to improve its overall ESG performance. State Street says these will be metrics directly relevant to a company’s business sector.

Observers say the new process is good news for companies because the focus is on materiality and allows them to see exactly how they improve their ESG scores.

But there remains a concern that it is yet another rating systems collecting information, one of the many already contributing to “reporting fatigue” among companies.

Disclosure requirements

The demand for ESG data disclosure comes not just from investors. In the EU, listed companies are required to disclose ESG information by the Non-Financial Reporting Directive (NRFD), though this has faced criticism for failing to provide detail on what information should be disclosed and how.

A campaign group, the Alliance for Corporate Transparency, says the NFRD needs fresh legislation to introduce a “mandatory baseline of disclosure requirements and metrics”.

This chimes with research across the EU undertaken by Board Agenda, which found a reassuringly large number of companies recognised the importance of sustainability to long-term value creation. But only half of those questioned could say their sustainability aims were delivered by “effective business policies”, and only a third could say sustainability had been integrated into performance measures and compensation schemes for executives.

US regulators continue to grapple with the disclosure of ESG information (ironic, given asset managers like BlackRock, the world’s largest, have publicly voiced the importance of ESG data). The stumbling block to more enthusiastic use of ESG information remains how to access it in a reliable form.

In October last year academics filed a petition with the Securities and Exchange Commission (SEC), the US financial watchdog, demanding that it begin work on defining “mandatory” disclosure requirements. Congress is also considering proposed disclosure legislation.

Commenting on the developments, Jessie Gabriel and Lauren Attard of BakerHostetler, a US corporate law firm, wrote: “Between the monthly reports of impending and dramatic climate change, the #MeToo movement, and more and more data confirming the importance of board governance to a company’s bottom line, the SEC may finally bow to the pressures of public opinion.”

The climate crisis is a dominant global issue and will remain so for the foreseeable future. Reports from organisations such at the Intergovernmental Panel on Climate Change have warned of the need to tackle global warming urgently. ESG issues will therefore continue to be an ever more important part of the investment chain.

That being so, companies will need to improve their strategies. Investors, in their turn, will have to hold them to account. Better metrics are therefore at a premium.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Investment managers hesitant to embrace ethics as part of ESG
    March 21, 2022
    Business ethics on cogs

    Study finds investors shy away from direct talk of ethics, but some are assessing company culture as an indicator of ESG performance.

  • Directors need to ‘up their game’ on ESG strategy
    April 4, 2022
    Board members looking at corporate reports

    Study says 70% of board directors say they are “not at all” or only “moderately“ effective at integrating ESG concerns into company strategy.

  • New Zealand parliament to debate reform to directors’ duties
    October 6, 2021
    New Zealand parliament buildings in Wellington

    MPs in Wellington will examine a bill that would allow New Zealand’s directors to consider ESG issues as part of their company obligations.

  • Good ESG ratings make firms more attractive to long-term investors
    November 29, 2021
    Five glowing stars

    Study shows that companies with verified ESG ratings attract "financially sophisticated" investors with "long-term orientation”.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

ESG, EU Non-Financial Reporting Directive, reporting, State Street Global Advisors, sustainability

Search


Sign up to our Newsletter

Receive independent news, thoughtful journalism & expert insights about leadership, corporate governance & key boardroom issues straight to your inbox every week.

SIGN UP

Follow Us

 

 

 

 

Most Popular

  • Audit reform in the UK risks ‘losing momentum’
  • Activist investor campaigns rise back up to pre-Covid levels
  • How to ensure stakeholders trust your sustainability reporting
  • Elon Musk weighs in against ISS and Glass Lewis
  • Climate litigation: how 2022 will shape 2023
 

Featured Partner Profile

Diligent

Diligent

Diligent Corporation, which was founded in 2001, is headquartered in New York, NY with a European HQ in London. Diligent’s modern governance platform empowers leaders and teams at every level of the organisation to digitally transform and create ...

Featured Partner Resources

2022 AGM Season Forecast: An Eye on The Horizon

To help prepare for AGMs in 2022, Equiniti (EQ) hi...

Stakeholder Engagement: A Roadmap for UK Plc Boards

This guide aims to provide directors and their col...

Digital Boards: How Technology Adoption is Driving Culture Change and Resiliency

Digital tools proved their worth to boards during ...
Leadership in AI report

Leadership in AI

This report from Board Agenda and Mazars, in assoc...
Creativity in a Crisis: a Boardroom Map for Innovation

Creativity in a Crisis: a Boardroom Map for Innovation

In the uncertain times at the height of any crisis...
Board Directors Guide to D&O Liability Insurance - November 2020 - AIG & Board Agenda

Board Directors' Guide to D&O Liability Insurance

Directors face liability over a range of new threa...
Leadership-in-Risk-Management-Board-Report

Leadership in Risk Management: Board Report

Board Agenda, in association with Mazars and INSEA...
Director's Guide to Internal Investigations

A Director's Guide to Conducting Internal Investigations

An internal investigation must be handled meticulo...

 


 

ADVERTISE – FREE CORPORATE LISTING

FREE - Add your company profile to our Corporate & Advisory Directory.
ADD

ADVERTISE – PROMOTE YOUR REPORTS & WHITEPAPERS

FREE - Add your company profile to our Corporate & Advisory Directory.
Add Resource

Register Free

Register to receive free article views, selected resource downloads, and all the latest news alerts straight to your inbox. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Corporate & Advisory Services
  • Media Marketing Solutions
  • Contact Us
  • Careers
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
  • Sitemap
|