ESG stands for Environmental, Social, and Governance

Why ESG investing needs standards?

  • With the rapid growth of ESG-focused investing, investors are often confused by a company’s ESG policies, reporting structures, and results. To verify ESG claims, we must create clear standards and universal practices for ESG reporting.
  • The ESG-driven investment will exceed $53 trillion by 2025. 90% of millennials report that they want their money in sustainable investments.
  • In 2021, the SEC issued a risk alert detailing observations of ESG-related deficiencies and problems related to investment advisors and funds making ESG claims.

Updates about ESG standards

July 2024
  • Starting in 2026 (just delayed from 2025), the European Union will require large and listed companies to disclose information on risks and opportunities related to their ESG practices, with a particular focus on the impact of their activities on people and the environment. The directive called for the creation of European Sustainability Reporting Standards, the detailed processes used by businesses to report under the Corporate Sustainability Reporting Directive (CSRD). 
June 2024
May 2024
  • ESG rating activities play an important role in the EU sustainable finance market as they provide information to investors and financial institutions regarding, for example, investment strategies and risk management on ESG factors. However, the current ESG rating market suffers from deficiencies and is not functioning properly, with investors and rated entities’ needs regarding ESG ratings are not being met and confidence in ratings is being undermined.
  • This problem has a number of different facets, mainly (a) the lack of transparency on the characteristics of ESG ratings, their methodologies and their data sources and (b) the lack of clarity on how ESG rating providers operate. ESG ratings do not sufficiently enable users, investors and rated entities to take informed decisions as regards ESG-related risks, impacts and opportunities. There are a few key takeaways for asset managers.
April 2024
  • Under the newly issued SEC Final Rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” registrants face new requirements to include climate-related information in registration statements and annual reports. The rule includes extensive new disclosure requirements that address climate-related risks, greenhouse gas (GHG) emissions and climate-related impacts on financial statements. The SEC has paused the implementation of its new climate disclosure rule while it fights in court over the measure’s legality because the U.S. Chamber of Commerce sued over the rule and has accused the SEC of trying to micromanage companies.
March 2024
February 2024
  • GHG Protocol supplies the world's most widely used greenhouse gas accounting standards. The tools enable companies to develop comprehensive and reliable inventories of their GHG emissions. The popularity of GHG Protocol standards is due in part to the widespread stakeholder outreach and consultation that is facilitated by WRI and WBCSD during each standard development project.
January 2024
December 2023
November 2023
  • For the first time, regulators and politicians in Europe, Asia and the US are determined to bring more transparency to how the ESG ratings are derived and ask questions about whose interests they really serve. ESG ratings look and sound like the familiar credit ratings produced by S&P, Fitch or Moody’s. In reality, there are two crucial differences: analysts are not yet subject to regulatory scrutiny on conflicts of interest, and they work in part on unaudited ESG data, rather than in audited financial statements. 
October 2023
  • Recent headlines show that ESG principles are under attack and that the business community may be retreating from adopting such principles. However, ESG remains a risk management tool for investors despite various partisans introducing ESG into the culture wars. In particular, integrating ESG principles into a startup’s operations and strategy can enhance its appeal to socially responsible investors, increasing the likelihood of securing funding.
September 2023
  • The global ESG regulatory landscape is evolving very rapidly. It is becoming increasingly difficult to keep up with all the changes and ensure that you understand the requirements, deadlines, and multiple acronyms. ESG Policy Perspective provides investors with an overview of the most recent regulatory developments across the globe on a regular basis.
August 2023
July 2023
  • The SASB Conceptual Framework set out the basic concepts, principles, definitions, and objectives that guided the SASB Standards Board in its approach to setting standards for sustainability accounting; it provided an overview of sustainability accounting, describing its objectives and audience.
June 2023
May 2023
  • ESG regulations can be confusing at the best of times, but global progress is being made to increase the consistency, accuracy, and transparency of disclosure requirements. Here is a good up-to-date summary of ESG regulations.
April 2023
  • The International Accounting Standards Board has issued guidance which sets out how the Task Force on Climate-related Financial Disclosures (TFCD) advice on climate risk reporting is required by International Financial Reporting Standards (IFRS) and if US GAAP were to be considered with the same approach, then investors would have vitally important information on both drivers of risk and value creation.
March 2023
  • Institutional investors need to better understand the impact of ESG factors on their portfolios and ensure they have effective regulatory reporting processes in place. Here are some latest updates on EU's ESG Regulatory Change and Its Implications.
February 2023
January 2023
  • The U.S. Department of Labor (DOL) announced its adoption of amendments to the regulation setting out retirement plan fiduciary duties of prudence and loyalty under the Employee Retirement Income Security Act of 1974 (ERISA) as they relate to investment selection and management. Particularly, the final regulation clarifies the ability of fiduciaries to consider non-financial characteristics, such as climate change and environmental, social and governance (ESG) factors, when selecting plan investments.
December 2022
  • The European Securities and Markets Authority (ESMA) is elevating the fight against greenwashing as a regulatory priority. ESMA is changing its supervisory priorities, replacing its focus on the cost and performance of retail investment products with greater attention to ESG disclosures, in particular, and sustainable finance overall.​
November 2022
  • In the 2022 Cato Summit conference on "The Rise of ESG and the Future of Financial Regulations", SEC stated that costs associated with the SEC's proposed ESG reporting rules may increase public companies' regulatory reporting costs from about $2 billion to $8.4 billion per year.
October 2022
  • The International Sustainability Standards Board (ISSB) is working diligently to meet the urgent demand for transparent and comparable reporting on sustainability-related financial disclosures. It is important for investors not only to get the information they need to assess a company’s current financial position, financial performance and cash flows, but also its ESG prospects over the short, medium and long term.
September 2022
  • ESG investing is growing rapidly in retail wealth management. But most of the large ESG ratings providers are focused on institutional asset managers, not retail wealth managers. Technology will continue to develop solutions to better equip advisors for ESG in a scalable, cost-effective way. With many ESG rating agencies and no unified view of what ESG means, it is no surprise that there is a wide range of ratings approaches that result in a divergent ratings scores.
August 2022
  • The Investment Company Institute, a trade association for regulated investment funds, slammed the recent SEC's proposed ESG disclosure proposal as "overly complex and prescriptive." ICI, whose members include BlackRock, J.P. Morgan Chase & Co. and Morgan Stanley, added that the rule as written "risks sowing confusion among investors while imposing significant compliance burdens on funds."
July 2022
June 2022
May 2022
April 2022
  • ISO is an independent, non-governmental international organization with a membership of 167 national standards bodies. There are Environmental management standards to help reduce environmental impacts, reduce waste and be more sustainable. ISO 14001 sets out the criteria for an environmental management system and can be certified to. It maps out a framework that a company or organization can follow to set up an effective environmental management system.
March 2022
  • The European Union’s Sustainable Finance Disclosure Regulation (SFDR) has come into force since March 2021. The SFDR is designed to help institutional asset owners and retail clients understand, compare, and monitor the sustainability characteristics of investment funds by standardizing sustainability disclosures. Under the SFDR, firms must make both firm and product-level disclosures about the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social factors, and sustainable investment objectives.
February 2022
January 2022
December 2021
  • SEC Commissioner provided companies under the SEC’s jurisdiction with significant insight as to what they should expect from the SEC’s proposal for new disclosure standards and how they should start planning to meet those expectations. In particular, SEC will tacitly change the definition of ESG materiality.
November 2021
  • The CFA Institute has announced the first voluntary global ESG disclosure standards for investment products designed to enable investors to better understand, compare, and evaluate ESG investment products. The standards would apply to all types of investment vehicles, asset classes, and ESG approaches, and would aim to support investors with complete and accessible information.
  • ​​The U.S. Department of Labor (DOL) has proposed new regulations that will be more favorable to ESG-based investment decisions.  The proposed amendments to its regulations (the Proposed Rule) will enhance the ability of employee benefit plan fiduciaries to consider climate change and other environmental, social and governance (ESG) factors in the investment of plan assets and the proxy voting of plan shares. The Proposed Rule would replace final regulations implemented by the DOL in 2020 (the Existing Regulations).
October 2021
  • ​FinTech has a significant impact on Environmental, Social, and Governance (ESG) standards, measures, data, and applications. The SEC Strategic Hub for Innovation and Financial Technology (FinHub) coordinates the agency’s oversight and response regarding emerging technologies in financial, regulatory, and supervisory systems, including in the areas of distributed ledger technology, automated investment advice, digital marketplace financing, and artificial intelligence/machine learning.
September 2021
  • Recent research shows that index-tracking and exchange traded funds are at risk of missing out on demand for sustainable funds as they struggle to adapt to new EU disclosure rules. EU's Sustainable Finance Disclosure Regulation (SFDR) requires certain financial service institutions, most notably those managing or marketing investment or pension funds/products in the EU, to disclose on various sustainability considerations to both potential investors and the general public. 
​August 2021
​July 2021
June 2021
  • ESG Disclosure Simplification Act of 2021 was approved by the U.S. House. The final bill (the Corporate Governance Improvement and Investor Protection Act) requires an issuer of securities to annually disclose to shareholders certain environmental, social, and governance metrics and their connection to the long-term business strategy of the issuer. The bill also establishes the Sustainable Finance Advisory Committee that must, among other duties, recommend to the Securities and Exchange Commission policies to facilitate the flow of capital towards environmentally sustainable investments.​​
  • SEC Commissioner recently shared some keynote remarks at the 2021 ESG Disclosure Priorities Event.  The remarks were centered around the four “myths and misconceptions about ESG materiality” that the SEC  believes have surfaced in the current debate around climate and ESG disclosures.
May 2021
  • The SEC’s risk alert identifies the increasing demand for advisory and investing ESG activity and its risk concern stemming from the lack of standardized and precise ESG definitions. The lack of clarity around various ESG definitions reflects the infancy of the ESG concept, the lack of regulation in this area, and the dangers of misrepresentation and misleading information provided to investors.
April 2021
  • The SEC issued a public statement - Rethinking Global ESG Metrics. In the US, the idea of enlisting the securities laws to achieve ESG objectives is gaining traction among activists and policy elites with a particular emphasis on requiring disclosure of specific ESG metrics. However, a single set of metrics will constrain decision making and impede creative thinking. Unlike financial accounting, which lends itself to a common set of comparable metrics, ESG factors, which continue to evolve, are complex and not readily comparable across issuers and industries.
  • During examinations of investment advisers, registered investment companies and private funds engaged in ESG investing, SEC has observed instances of potentially misleading statements, according to an a newly released SEC Risk Alert.
  • Recent research found it helpful to use SASB and GRI standards together for their sustainability reporting. The two standards complement each other, with GRI supporting comprehensive disclosures on organizational impacts, while SASB focuses on a subset of financially material issues. A Practical Guide to Sustainability Reporting Using GRI and SASB Standards includes surveys with 132 business representatives from around the world.
  • The financial sector is starting to respond to climate-related financial risks. The Central Banks and Supervisors Network for Greening the Financial System is acknowledging finance as a powerful tool for change. Its goal is to share best practice on aligning financial flows with the Paris agreement.
  • ​Back in 1972, environmental, social, and governance (ESG) investing had a long way to go. This infographic from MSCI - Inside ESG Ratings: How Companies are Scored - shows what’s behind a company’s ESG rating, and where the expansive universe of data comes from.
March 2021
  • The Federal Reserve created a new Supervision Climate Committee (SCC) to strengthen our capacity to identify and assess financial risks from climate change and to develop an appropriate program to ensure the resilience of our supervised firms to those risks. To complement the work of the SCC, the Federal Reserve Board is establishing a Financial Stability Climate Committee (FSCC) to identify, assess, and address climate-related risks to financial stability.
  • The SEC launched a new ESG website to bring together agency actions and the latest information about climate and environmental, social and governance (ESG) investing. In response to increased investor demand for this information, the page will appear on the front page of SEC.gov and will be updated as the agency continues to respond to investors. SEC will look at how climate and ESG intersect with broader regulatory framework to get investors the information they need to plan for their financial future.
  • ​The U.S. Department of Labor (the “DOL”) has issued a statement on March 10, 2021, that it would not pursue enforcement actions for violations of two recently published rules related to Environmental, Social, and Governance (“ESG”) investments.
  • The SEC has issued a public statement entitled “ESG Disclosure – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets”. It noted the increasing demand for ESG disclosures by investors and the role ESG plays in investor decision-making. The remarks also identified four issues at the forefront of the debate around ESG disclosures: how to create an ESG disclosure system, the pitfalls of not having an ESG disclosure system, mandatory vs. voluntary ESG disclosures, and the benefits of a standard global ESG disclosure framework.
February 2021
  • SEC issued a statement directing the Division of Corporation Finance to "enhance its focus on climate-related disclosure in public company filings." After completing a review of public companies' efforts and compliance in regards to the SEC's 2010 interpretative guidance to public companies regarding existing SEC disclosure requirements as they apply to climate change matters (2010 guidance), the SEC staff will update the 2010 guidance to reflect developments in the past decade. 
  • SIFMA, as a member of the U.S. Climate Finance Working Group, published 10 principles for a U.S. Transition to a Sustainable Low-Carbon Economy. The principles, developed in coordination with 10 other leading financial services trade associations representing the perspectives of banks, investment banks, insurers, asset managers, investment funds, pension funds and other financial intermediaries, build from that experience to create a useful policy framework for the transition to a low-carbon economy.
January 2021
  • A third of global managed assets ($30 trillion) are now subject to ESG criteria. But current focus on ESG measurement is dangerously narrow. It fails to capture the complex, systemic nature of social and environmental systems.
  • Every year new ESG reporting standards or frameworks are added to the overstuffed workload of the corporate sustainability professional. There has been more talk than action on reducing confusion and burden in the ESG reporting space. Can we finally standardize ESG standards?
  • Before investors take any ESG claims seriously, the accounting has to change. Prudence, dual reporting, and matching are three basic financial reporting principles. But they are virtually unheard of in ESG accounting standards today.
  • Many investment professionals believe that launching a new ESG product or service will be an easy success. One recent data analysis shows that this is far from the truth: most of these ESG offering efforts fail.
  • Bloomberg and Rockefeller announced the launch of the Bloomberg Rockefeller U.S. All Cap Multi-Factor ESG Improvers Index, available through the Bloomberg Terminal. Unlike other ESG indices that emphasize screening around ESG leaders or laggards, this index ranks a company’s improvement in performance on material ESG issues relative to industry peers.
  • ​The ESG investment industry is broken -  ESG investment industry is a marketing mechanism. Rather than follow ESG investment parameters and ignore “dirty” companies, products of which society needs, investors want a greener world. ESG investing should put pressure on the boards of such companies to pursue more sustainable practices.
December 2020
  • Why ESG scores don’t tell the whole story - Each ESG rating provider uses a different methodology, which results in a low correlation between ratings that supposedly measure the same thing. Compared with traditional financial reporting, ESG disclosure is not as deep, nor is it consistent between companies. Financial statements often only provide 20 to 30 percent of the ESG metrics investors may want to track for an industry. 
  • A sign the ESG movement is too big to ignore: there's backlash - why agencies are pushing back on the notion that corporations should prioritize anything other than profits.
  • ESG reflects long-term resiliency for investors - No longer can a company focus solely on profits and ignore the damage it inflicts on its employees, its community, its environment and the planet at large. But committing to ESG activities isn’t just good public relations; investors are looking for companies that integrate their missions throughout their operations.
  • How not to use ESG scores for evaluating sustainability - Danger of using average overall, subjective and non-consistent external metrics - ESG scores provide valuable insights into an investment portfolio’s level of sustainability. The ESG investors, asset managers, and index providers should be careful about relying solely on these data. ESG score-based approach serves the commercial interests of rating providers. These ESG scores are not able to guide investors concerned about social welfare and environmental sustainability.
  • Reimagining Accounting To Measure Climate Change Risks - Carbon emissions intensity must reduce significantly over the next few decades if the most dramatic climate-change scenarios and the associated social and economic costs are to be mitigated. Accounting standards should be improved to facilitate the provision of more historic and forward-looking sustainability and climate-related data and information.

ESG Research References

  1. Inside ESG Ratings: How Companies are Scored (2021)
  2. ESG Ratings and Data: How to Make Sense of Disagreement - Paul Weiss (2021)
  3. Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement - Harvard Business School (2021)
  4. ESG Ratings: The Road Ahead - Milken Institute (2020)
  5. ESG rating disagreement and stock returns - Inrate AG (2020)
  6. ESG Investing: Practices, Progress and Challenges - OECD (2020)

Importance of ESG standards
​Welcome to ESGStandard.com, a free online resource dedicated to standardizing environmental, social and corporate governance (ESG) metrics and ESG investing. 
​
ESG investing has become a popular concept. Yet relatively few American investors are familiar with what is ESG and how to make better ESG investing. According to the CFA Institute, there is no standardized approach to calculate or present different ESG metrics. Investors can employ any selected analytical approaches and data sources to address ESG considerations, including weighting to client interest and potential value. Surprisingly, new research shows that some ESG funds have voted against environmental and socially conscious resolutions.
Many ESG investors today have experienced that existing data on sustainability issues are bad quality or inconsistent, which increases the difficulty of comparisons between companies. I believe understanding the relative merits and limitations of different metrics is necessary to help form a complete picture of ESG risks and opportunities. ​
The financial industry’s growth can only be sustainable by adding measurable value when serving investors. Please contact us about our ESG standard training and consulting services to identify and re-engineer inferior ESG products and services, commonly seen at many financial firms today. Through better standard and technology applications, our forefront research yields better results in performance improvement, cost savings, risk reduction, behavioral measurement, and standard benchmarking.
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