The importance of data standardisation for your investments

As more investors and asset managers recognise the value of ESG (Environmental, Social, and Governance) investing, a major challenge persists: the lack of data standardisation. Many investors struggle to accurately assess a company’s ESG performance due to inconsistent and fragmented reporting practices.

Research by the Institute for Energy Economics and Financial Analysis highlights the absence of unified objectives and standards in ESG ratings across industries and countries. ESG experts point out that diverse methodologies, metrics, and weightings make it difficult to compare performance across companies. This inconsistency hinders investors from making well-informed decisions in an already complex landscape.

Despite these challenges, the ability to analyse and understand a company’s sustainability practices remains crucial. In the following sections, we’ll explore how data standardisation can benefit your business.

1. Identifying Differences, Risks, and Opportunities

The lack of standardised ESG data poses significant risks for asset managers trying to evaluate a company’s ESG performance. Without a unified system, investment decisions become fragmented and incomparable, making it harder to obtain a complete picture of a company’s sustainability efforts.

Moreover, in the absence of a robust, science-based framework, critical risks may go unnoticed until they escalate into major issues. Standardisation is essential to uncover these risks and provide a comprehensive view of opportunities.

2. Making Data Comparable Through Standardisation

ESG rating providers, such as MSCI ESG Ratings and Sustainalytics, often use distinct methodologies and scoring systems. As a result, the same company may receive widely varying ESG scores, creating confusion about what the data actually represents.

Additionally, even a company’s own sustainability reports may lack transparency, often omitting key information. Standardised reporting ensures consistency, making it easier to interpret and compare ESG data across companies and industries.

3. Clarifying Expectations and Evaluating Your Portfolio

Navigating compliance with ESG standards is increasingly complex due to the proliferation of legal frameworks, reporting initiatives, and frequent changes. Companies face challenges in identifying which aspects to report and effectively communicating this information to stakeholders.

By adopting standardised reporting processes, organisation scan clearly define what, when, and how to disclose their sustainability efforts. Standardisation not only simplifies compliance but also enables companies to take greater control of their ESG strategies, measure progress, and meet stakeholder expectations.

4. Take the Next Step

Standardising your ESG data collection and reporting processes will help you identify risks, streamline workflows, and enhance transparency. Ready to improve your ESG strategy?

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