Op-ed: Reliable Sustainability Information is only the first step
A thought-provoking discussion has taken place about corporate sustainability information and the increasing regulatory requirements of such frameworks. It is often pointed out that the cost of disclosure can be high and the process complicated. In this context, it is worth noting that corporate sustainability information goes beyond the data that public authorities require them to publish. Corporate sustainability data appear, for example, in lawsuits, the media, annual reports, and various forms throughout the value chains of companies, to name a few examples. To capture corporate sustainability data comprehensively, it is also important to place companies in the context of the industries they belong to and the risks they face, both directly and indirectly, through their value chains. While standardized data mandated by government requirements represent a significant step forward, they are only one piece of the puzzle of information needed by the financial market and, in some cases, are not even the most critical information that market participants need.
Sustainability Information Will Remain Unreliable
Corporate sustainability information has evolved from being a product of marketing departments to following guidelines generally accepted by market participants and ultimately falling under regulatory frameworks. Despite recent complex regulations related to sustainability disclosures (such as the CSRD, the EU Taxonomy Regulation, and SFDR), these are not exhaustive of the information that market participants need for informed decision-making. This means that if an analyst is to assess a company with sustainability in mind, there are other factors, beyond what the regulatory framework prioritizes and companies report. These include external factors in companies’ value chains, such as crop failures abroad, fluctuations in commodity prices due to weather anomalies, access to company products in key markets due to social instability, as well as information generated more frequently than annual reports can indicate (such as information from lawsuits and the media). The data companies will provide in line with regulatory frameworks represent a significant step forward, but only the first step toward more reliable sustainability disclosures.
Access to Data Would Have Been a Problem
Even though companies disclose information in accordance with regulations, this does not guarantee stakeholders’ access to it. Part of the problem is technical in nature, as sustainability information is published in, for example, scanned annual statements, various types of sustainability reports, and websites in formats that do not always comply with regulatory guidelines. The European Union has not addressed this issue clearly. At some point, the European Union will establish a database (the European Single Access Point, ESAP), which will receive reports in a predefined format. This database is expected to be operational earliest by 2027, according to official EU information. It is therefore important that sustainability data about companies are collected centrally. At Creditinfo, we proudly undertake this task as it involves critical corporate information.
Reducing the Burden on Companies
The Icelandic financial sector wants to access reliable sustainability information about companies. It seeks this information partly because legal requirements stipulate that financial institutions must have this data available, but also because financial industry employees take sustainability risk seriously, as clearly reflected in bank risk reports. Companies outside the financial market have also sent questionnaires to their suppliers to obtain sustainability information. As a result, companies often receive multiple such questionnaires every year from various sources. At Creditinfo, we see significant waste occurring here. Instead of having a multitude of questionnaires circulating, we realized that it would make more sense if companies answered one such questionnaire, making it accessible to all interested parties. That questionnaire is now available through Vera, Creditinfo’s sustainability platform, and hundreds of companies have filled it out, simultaneously minimizing the associated burden as interested parties can simply access the questionnaire via Vera.
Most companies in Iceland do not fall under the regulations that have been most widely discussed (such as the CSRD and the Taxonomy Regulation). However, this does not mean that this issue is being neglected by them—on the contrary. That is why we have made efforts to give these companies the opportunity to present their information on a larger platform than has been available to them before, through our sustainability platform, Vera.
The Reason for Collecting Data
The discussion about corporate sustainability information has focused more on the quantity and quality of the data than on the reason for its collection. The truth is that greenhouse gas emissions reached a historical high in 2022, at 54 billion tons of CO2 equivalent, about 30% of the global population lacks access to clean drinking water, 13% of individuals over the age of 15 are illiterate, and 10% of the global population is undernourished. In this regard, the financial system is in a key position to improve living conditions and our future. It is important not to lose sight of the goal and get lost in discussions about regulations and data. At Creditinfo, we want to continue to promote the reliability and accessibility of sustainability information about Icelandic companies so that informed decisions can be made for the benefit of all.
Authors:
Hrefna Sigfinnsdóttir, CEO of Creditinfo in Iceland
Reynir Smári Atlason, Head of Sustainability at Creditinfo
