Written by Aliyah Assegaf
15 October 2024
As Environmental, Social, and Governance (ESG) reporting gains momentum, 2024 is expected to be a pivotal year for the standardization of ESG metrics across industries. This effort aims to create a cohesive framework that allows investors and stakeholders to compare the sustainability performances of various companies more effectively.
The Need for Standardization
Currently, there is significant inconsistency in ESG data reporting, which poses challenges for investors. A survey revealed that only 33% of investors believe the ESG reports they receive are of high quality, while nearly half express a lack of trust in ratings provided by different organizations (KEY ESG). The variation in ESG scores from multiple rating providers complicates the investment landscape, as investors struggle to navigate the complexities of non-financial metrics. This highlights the urgent need for standardized reporting frameworks to enhance transparency and reliability.
Collaboration Across Industries
To address these challenges, greater collaboration among industries is anticipated in 2024. Organizations increasingly recognize the importance of uniform standards for ESG metrics. This initiative will involve companies, regulatory bodies, industry associations, and data providers working together to develop cohesive guidelines for ESG reporting (IRIS Business, KEY ESG).
Such collaboration can lead to the adoption of common frameworks that define credible ESG data, making it easier for companies to comply with reporting requirements and for investors to make informed decisions (EY US).
The Role of Emerging Technologies
Emerging technologies such as artificial intelligence (AI), blockchain, and data analytics are poised to play a crucial role in the standardization of ESG metrics. AI can streamline data collection and analysis, enabling companies to efficiently track and report their ESG performance. Generative AI platforms, for instance, can consolidate diverse data sources, facilitating compliance with reporting standards (EY US).
Blockchain technology, often called the "trust machine," enhances transparency and traceability of ESG data. It enables secure and immutable record-keeping, significantly reducing the risk of greenwashing and improving stakeholder confidence in reported metrics. Leveraging these technologies can help organizations improve the accuracy of their ESG reporting and enable real-time tracking of sustainability efforts (EY US).
Looking Ahead
As companies face growing expectations around ESG reporting, the push for standardization is likely to gain momentum. The combination of collaborative efforts and technological advancements will shape the future of ESG metrics, helping businesses improve transparency, comparability, and accountability in their sustainability practices.
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