Source: What are ESG Frameworks? | IBM
Preparing for growing ESG trends
AI-driven data scraping by ESG ratings tools
Increasingly, AI and bots are used to evaluate an organization’s ESG performance through publicly available data. This practice, which is known as data scraping, presents a new challenge for organizations because it means that the data being used to assess access to capital is largely outside their control.
Various firms synthesize ESG data from different sources including ranked and “best of” lists, product review websites, social media posts and comments, company databases and news articles to build an organization’s profile.
Although these scoring systems and the piecemeal data that is gathered through data scraping don’t provide the context, methodology used or granular detail required from most investors, the practices are nonetheless becoming more widespread.
With the practice of data scraping on an upward trend, investment and sustainability teams should consider the following approach to regain control of their data and protect the organization’s ESG valuation from the inevitable downsides of AI-driven ESG data scraping.
– Step 1: Identify which rating agencies you need to target. Approach your key institutional investors and ask them which rating agencies they use.
– Step 2: Understand what data the target rating agencies use and how they go about uncovering it. Ask the rating agencies directly if possible, or research online to uncover what you can.
– Step 3: Ensure that the data you’re providing and the places where you’re sharing it meet the needs of the rating agencies. To accomplish this, follow these tips:
Check your organization’s publicly available information to ensure that the data captured by the AI data scraping and bots is accurate. Undertake an analysis of the terminology that is used and adjust for clarity. This analysis should be applied to your organization’s website, comparison websites and company search databases such as Bloomberg.
Track conversations online to determine what has been published about your organization and attempt to rectify any inaccurate statements. Examples include customer reviews, Google business listings and customer social media comments and mentions of the organization.
Provide more data in sustainability action plans and reports. Publish supporting documents that go into further detail about the organization’s ESG performance and efforts. This data can then be published on your organization’s website, social media or other platforms.
A global standard in ESG reporting
The future of ESG reporting can be seen from at least three perspectives: regulatory changes, industry coalescence around frameworks and inter-framework consolidation. All these perspectives indicate one major directional move: the harmonization of ESG reporting frameworks.
– Regulatory changes: Various progress has been made across national and supranational jurisdictions. The US Securities and Exchange Commission (SEC) announced a proposal in March 2022 to mandate ESG disclosure modeled off the TCFD. Similarly, the EU’s sustainable finance package—the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), which includes CSRD—will further require ESG-related disclosures from companies.
– Industry sectors coalescing: As the practice of ESG reporting matures, industry sectors are coalescing around their preferred frameworks. The early movers in this regard were in the property sector, which favors reporting against the GRESB framework. This trend occurs more recently among the investment community, with asset managers such as BlackRock encouraging their investees to report against SASB.
– Framework consolidation: These changes result in a reporting landscape in which frameworks are becoming more specialized, as seen with the International Financial Reporting Standards (IFRS) Foundation and GRI, or are consolidating, as seen with the International Integrated Reporting Council (IIRC) and SASB.
With progressive steps toward a common language around ESG reporting and new announcements being made every few months, how can organizations better prepare for the inevitable changes facing ESG frameworks?
Having an accurate and auditable data foundation today means avoiding historical errors and changing processes when ESG reporting changes come into effect. Your ESG reporting software solution should help achieve this with an auditable data record and accurate emissions calculations.
The solution should be regularly updated in line with new framework requirements to ensure that ESG reporting remains current with market obligations.
Sustainability leaders should look beyond their current stakeholder group and consider others who can provide the granular data that is required from different frameworks and regulatory changes.
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