The industry must understand that greenwashing is only the starting point in the broader conversation around sustainable investments, says Reynir Atlason, head of sustainability at Creditinfo.
He says investors increasingly want to understand the tangible social and environmental impacts of their investments, alongside their financial returns, so access to credible data is key.
But there is still a long way to go to make data on sustainable investing easy and straightforward to use, he says.
In a Q&A with FT Adviser In Focus, he explains where environmental, social and governance data is lacking, what improvements we can expect in this space in the coming years, and what would be the single most effective move to make the ESG retail investment space work better for investors.
FTA: ESG data has historically been limited and not homogeneous. Is this changing?
RA: We're certainly seeing a shift in some regions where regulatory changes are pushing larger companies to standardise their ESG data.
European regulation has spearheaded this with the EU taxonomy and the corporate sustainability reporting directive enforcing greater transparency and more robust ESG reporting processes from businesses. We're also seeing other countries, such as the US and UK, follow suit.
While these changes are a step in the right direction, there is still a long way to go globally. The pace of regulatory reform differs across countries, and the company size also has implications.
For instance, the EU taxonomy exempts small and medium-sized enterprises from compliance, meaning data from these sources will continue to be inconsistent.
As a result, most companies will likely continue providing fragmented and limited ESG data for the foreseeable future.
FTA: What might give this a push forward?
RA: Most financial institutions' current focus is on gathering reliable ESG data for compliance purposes.
However, as data availability improves, and compliance becomes more routine, financial institutions will place greater emphasis on measuring the impact of their ESG efforts.
Banks will play a pivotal role in driving society's shift towards sustainable practices.
As the quality of ESG data improves, we can expect them to continue prioritising traditional KPIs while progressively incorporating positive impact initiatives into their investment and lending strategies.
FTA: Where are the biggest crunch points when it comes to reliable sustainability data?
RA: Access to sustainability data remains cumbersome. While large and listed companies in developed markets, such as the EU, are now publishing standardised sustainability data, retail financial services still have trouble accessing this data.
This is because many of the regulations governing data disclosure are still very new and being phased in.
For example, the data collected through the EU's taxonomy and CSRD regulations, which use official EU standards, will eventually be gathered in a central European single access point (ESAP) database.
