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The Challenges in ESG Reporting Frameworks, According to Experts

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Financial institutions face a mountain of challenges in formulating an ESG reporting framework as they strive to put in place processes to meet a growing body of regulatory obligations.

A lack of disclosed data from investee companies, the multitude of vendors needed to source enough relevant information, the lack of a standardised global reporting framework and poor data quality are among the chief obstacles, a panel of experts told the A-Team Group’s inaugural ESG Data and Tech Summit London.

The growing burden of reporting obligations piled on multinational financial companies was one that Global Legal Entity Identifier Foundation (GLEIF)’s Hany Choueri said was of particular concern, especially as jurisdictions worldwide get to grips with their own rules, creating a patchwork quilt of regulations worldwide.

With firms often required to offer instrument-level information on their holdings, international banks and institutions would be expected to make hundreds of separate submissions, Choueri told speakers on the panel, entitled “How to Develop a Reporting Framework for ESG Disclosure Regulation”.

That could be worsened if each jurisdiction demanded different data and if regulations were formulated and enacted slowly, said Choueri, who is Board Member for Sustainability and Vice Chair at GLEIF.

Data Misconceptions

The data and scores behind ESG disclosures have often been criticised for being subjective or established according to contradictory methodologies. But Chris Johnson, Senior Product Manager, Market Data at HSBC argued that such criticism missed the point. Too many market participants wrongly assumed that ESG data could be treated the same as credit and other data, Johnson said.

Firms needed to spend time properly analysing sustainability information, he said, suggesting that it would be difficult to find data that was purely objective.

Johnson also warned that the slow rollout of regulations in Europe could expose firms to censure. The Sustainable Finance Disclosure Regulation (SFDR) depends on data presented under the Corporate Sustainable Reporting Directive (CSRD), but the latter isn’t expected to come into force until much later than the former, he warned.

In the absence of a global set of reporting standards, individual financial firms are likely to create their own frameworks, said Vishal Shah, Solutions Specialist at data provider Alveo. He said many companies are pulling together tailored solutions based on a variety of reporting standards in the market, meaning firms would have to deal with a multitude of client approaches in their disclosures, a point of potential problems.

Even once a firm has established what data it needs and had found suitable sources, there still remained the question of whether its technology architecture was able to ingest and manage the content, offered Tim Fox, Product & Regulatory Lead at ESGi. To circumvent a host of associated challenges, Fox suggested a four-step process of researching, identifying, applying and sourcing data before putting in place an ESG strategy.

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