Sustainability investing continues to grow in popularity, but the lack of standardization in sustainability reporting poses a challenge for investors wishing to maximize the social responsibility, and minimize the social damage, of their investments. The authors, who previously studied sustainability ratings issued by the mass media, now turn their attention to rankings used by the investing community itself. The findings indicate that they may be a more reliable barometer of a company’s commitment to environmental, social, and governance impact; nevertheless, further research into the long-term link between sustainable practices and value creation is needed.
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The growing global recognition from stakeholders, regulators, and others of the importance of sustainability in decision making has led to an increased demand for related reporting and material disclosures. Sustainable investing seeks to drive positive Environmental, Social, and Governance (ESG) impact alongside financial results and refers to these three central factors in measuring the sustainability and ethical impact of an investment in a business. These ESG factors are one type of information-gaining prominence and consideration among pension plans, endowments, foundations, charities, insurers, financial institutions, money managers, mainstream investors, and others.
Measurement company environmental impact
ESG data spans a range of issues, including measures of company environmental impact, labor and human rights policies, religion, and corporate governance structures. To this end, there is a demand for increased information from fiduciaries. Although organizations such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the International Integrated Reporting Council (IIRC) have developed different frameworks to facilitate reporting, there is currently no globally consistent and coordinated policy or process to report ESG information to the public. Given that there is no required assurance of sustainability reports, the information supporting sustainability investing is still evolving, and the efficiency of this market can be questioned. In other words, it would appear that the supply of sustainability information does not meet the demand from investors and the general public.
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This information gap must be addressed, and the information provided needs to be balanced, comparable, and consistent with respect to ESG risks. Navigating through this tangle of ESG and sustainability metrics can be challenging. The goal of ESG scholars today is to address sustainability ratings and rankings used by serious investors in the hope of providing CPAs with meaningful and useful perspectives on this topic and more information on the use of sustainability rankings in shaping the decisions of corporations and money managers.
Courtesy: www.cpajournal.com
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