There is a big difference when companies report ESG data in a machine-readable, standardized format.
The market needs the data in a structured form to use in trading algorithms. Investors need this data to have accurate knowledge about the social and environmental impacts of their portfolios. Businesses need these standards to guide them into reporting relevant, decision-useful data in a normalized fashion.
Embrace Standards and Technology
Automating sustainability reporting leverages technology to ensure that data on inclusivity is also inclusive. There have always been capital-driven structures that favor larger players in the data gathering game. A large fund uses its resources to follow investing trends and can beat smaller players to the market. This encourages a great deal of gamesmanship when it comes to investing in sustainable targets. Gamification of sustainability will not lead to a more sustainable future. To ensure that access to ESG data does not become the purview of the elite, it must be automated, structured, and made widely available.
For the first time in history, data on sustainability will be machine-readable, normalized, parsed into relevant categories, similar to the US-GAAP standards. This has been a market-driven process from the beginning and falls in line with current ideas surrounding “Data as the New Oil.” Oil and fossil fuels drive heavy industry and manufacturing, and in finance and investing, data streams drive big investing decisions affecting trillions of dollars in value. It’s an easy analogy to draw and one that has hit the collective market psychology dead-on. What you know and how you use it have become essential pieces to successful investment strategies. It follows that controlling these sources of value-generation is an advantageous position to hold.
Signs of What’s to Come
The recent merger between IHS Markit and S&P Global made waves due to its size. And appropriately so, given that it will create one of the world’s largest holders of financial data at a time when that data continues to grow in value. The M&A story is one of combining complementary data sets with technology-based tools to make value from them. By bringing together these two components, value is created where there was none before.
A similar effect can be very powerfully noted in the SASB/XBRL rollout. XBRL provides the technological underpinning for a move that is very much about access and investment. Shouldn’t it be important to know and quantitatively compare employee benefits programs? A company that cares for its employees well may also have correlated financial metrics that show vitality and growth. Retention of employees and particularly of historically under-represented groups can show a promising future for a company within an industry. The key here is that the financial data is not separate from the sustainability data. They need to be viewed as equally weighted metrics for evaluating future prospects.
Shining a Light
Recent events in the United States have created waves of qualitative statements about making positive, socially-minded shifts in business practices. The pandemic brings worker safety and well-being to the forefront, whether it is a question of working in the ICU or shifting to an isolated, work-at-home environment. More than ever before, we are becoming aware of our impact on the world and the inescapability of decisive corporate decision-making. This is a step towards accountability to those qualitative statements by tracking them in standardized quantitative metrics. How much of a game-changer is this shift going to be? The past has shown that where you shine light, knowledge, and change can follow.
At idaciti, we’re happy to be part of the group shining the light.
View the recording of a webinar hosted by XBRL-US to learn more about the SASB standards, the XBRL taxonomy built to represent them, and how the process of preparing, extracting and analyzing machine-readable ESG data will work in practice. See how sustainability data can be mashed up with corporate financial data to illuminate the impact of environmental and governance issues on public company financial performance.
For more information on idaciti's ESG offerings, please contact: info@idaciti.com
