ESG leaders say ‘sustainability reporting making progress, but still work to do’ at fall Finance Forum
Leaders in ESG—environmental, social and governance—say the industry is making progress, but they also said there’s still a lot of work to do in standardizing how ESG is reported and measured.
The Reiman School of Finance in the Daniels College of Business hosted four speakers on the topic in an online symposium Oct. 30, who all agreed that having companies report on their sustainability and environmental efforts is vitally important because there’s a proven link between company performance and a commitment to ESG.
“There have been about 1,400 studies published on ESG issues and we know there is a positive association between companies’ profitability and their ESG work,” said Chris Hughen, an associate professor of finance at Reiman.
That’s an important point, the speakers said, because investors are using reports from companies to decide where to put their money.
Hughen also praised the Sustainability Accounting Standards Board (SASB), the nonprofit that sets ESG-type reporting standards for businesses to communicate sustainability information to investors.
“SASB does its work really well and it sponsors a certification that has turned out to be a great product to educate people about ESG,” Hughen said.
Nicolai Lundy, director of education for SASB, said the industry continues to work toward a common language companies and investors can use, and that in September, the International Business Council (IBC), made up of 120 CEOs from around the globe, released its final recommendations for a core set of sustainability disclosures to be included in companies’ annual reports.
“I think the IBC making this statement, offering the recommendations and signing off on ESG metrics are all really good signals,” Lundy said. “I think in general, C-suite executives believe ESG is important and some are on top of it. Overall, I believe the recommendations are a positive effort.”
Carrie Christopher, director of sustainability reporting for Newmont Mining, the world’s largest gold mining company, agreed with Lundy and called the recommendations “a good attempt to get everyone together” on the topic and that it “amplifies the message that more standardization is needed.”
Eivind Lorgen, CEO of the investing giant Nordea Asset Management, North America, and a Daniels alumnus, added that he is certain that companies that “live up to” ESG standards outperform the market but also said there is a need for “consistent, reliable ESG” reporting that goes beyond financial information.
“We realize financial metrics are standardized and that’s what we want in ESG,” Lorgen said. “We need a comprehensive system that combines financial and ESG data together—because much of the information investors need is not part of the balance sheet.”
Lundy admitted consistency in ESG reporting has been “a challenge.”
“We know investors looking at sustainability data have found it difficult to compare,” he said.
There are a lot of organizations that rate companies on ESG issues, but those ratings can be “wildly different.”
“One company can be rated high in an area and low in that same area by another organization,” Lundy said. “We’ve seen larger companies get higher ratings than the medium and smaller companies, but are larger ones always better? No, we know that’s not true. We need more data to reduce the variability. That will take time. It’s not a simple flip-of-the-switch kind of solution.”
At least some of the data that is needed to reduce that variability will likely come from the Daniels College of Business.
Hughen added that Daniels’ faculty has put “an enormous amount of work” into studying ESG issues and sharing that with students. “It’s simply a vitally important industry,” he said.
Christopher praised the Daniels College of Business for keeping ESG in the spotlight for students.
“We’ve hired Daniels graduates and I’ve seen firsthand how well they understand the issues surrounding it,” she said. “The College is doing a great job of educating students on this important topic.”