Responsible Banker - 21 September 2020

  • Published date: 21.09.2020
  • Category:

ARTICLE OF THE WEEK

ESG investors note lack of data on diversity

What’s happening? Companies in the US are better than their European or Asian counterparts at compiling data on racial diversity for ESG-focused investors, but remain reluctant to share the information, analysts have said. According to S&P Global, only around one-third of firms it assesses internationally made such data public. The firm added in some cultures discussions of race or ethnicity are tainted by history or deemed "taboo".

Why does this matter? Nuances exist within ESG disclosure levels by region. This is partly due to differing business cultures, but also historical factors. This issue is becoming increasingly significant amid growing efforts to reconcile regional differences in ESG data reporting and integration.

From a social angle, investors in US companies have typically been able to access more transparent diversity data. Nevertheless, there are still hurdles to address, as there is no requirement to publicly disclose racial and ethnic data.

Meanwhile, although Europe is often a centre for ESG activism, certain European governments, including France and Germany, have prohibited collecting ethnic and racial data. In Asia, the issue of an ESG and diversity data gap is exacerbated by discussions on racial differences remaining “somewhat taboo in many Asian countries”, Stephanie Creary at the University of Pennsylvania has noted. Additionally, turning to ESG disclosure more broadly, the majority of companies in China report insufficient ESG metrics relative to other countries’ standards.

This leads us to a polemic question: whether to adopt universal ESG standards, or acknowledge regional variances? 

The former would allow for more standardisation, which would help with benchmarking and comparing companies’ performance. Regional and cultural differences, however, show the difficulty of creating a one-size-fits-all approach. 

There have, however, been attempts to bridge these gaps. The multi-stakeholder think tank 2 Degrees Investing Initiative (2DII) has recently launched an open-source climate scenario tool to help banks align their portfolios and ESG analysis with a more global, standardised climate framework by using the Paris Agreement capital transition assessment (Pacta).

In parallel, global regulatory bodies such as the International Organisation of Securities Commissions are seeking to harmonise the regional and sectoral differences in ESG disclosure standards.

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