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April 17, 2024

Access to ESG data hindered by absence of climate-related disclosure rules, says CFA

An employee connects cables between an electric motor and lithium-ion automotive battery on the Volkswagen AG (VW) ID.3 electric automobile assembly line
‘Obtaining comprehensive, reliable and comparable climate-related company data can be challenging because many jurisdictions lack climate-related disclosure obligations,’ says the CFA Institute (Photo: Krisztian Bocsi/Bloomberg)

Companies’ disclosure of climate-related information is inconsistent, the CFA Institute says, while claiming that not all data providers are up to scratch

Accessing “comprehensive, reliable and comparable climate-related company data” is made difficult by a lack of rules governing climate-related disclosures in many jurisdictions, concludes a report by the non-profit CFA Institute.

Policymakers and financial market participants have expressed concerns with the quality of ESG data. In 2023, an all-party parliamentary group on ESG urged the UK government to consult on ESG data, with MPs observing that this data is “not accurate nor comparable”, and in March a Bloomberg survey of financial market participants in the UK and the EU unearthed quality and coverage issues around ESG data.

“Obtaining comprehensive, reliable and comparable climate-related company data can be challenging because many jurisdictions lack climate-related disclosure obligations,” says the CFA report, which provides an overview of the difficulties faced by investors when it comes to securing ESG data.

Where these disclosures are not compulsory, information might be provided under an overseas jurisdictional mandate or voluntarily via channels such as the CDP’s disclosure platform, it adds.

The CFA likewise claims that “a high degree of inconsistency exists in what climate-related information, if any, companies disclose”, including how businesses define, measure and calculate this data, and that the timing of these disclosures can vary depending on the fiscal years of companies.

“The timing of climate-related disclosures may not sync with the issuance of a company’s financial statements, leading to difficulties in interpreting carbon metrics based on financial disclosures”, it continues. 

The report also highlights the deficiencies of some data providers, underlining that many lack coverage of smaller businesses and of companies domiciled in emerging markets. 

“Using data providers does not automatically ensure reliable information,” it says. “In cases where actual climate-related data are found to differ substantially from estimated data, such an error could lead to higher portfolio climate risk exposure than was intended or cause a fund to violate its label criteria or climate-related characteristics.”

You can find the full report here.

A service from the Financial Times