Sustainability Info ‘Necessary for Informed Investing’

by | Nov 15, 2012

The disclosure of corporate sustainability data should be mandated, because such information is necessary for investors to make fully informed decisions, according to a white paper by Harvard University’s Initiative for Responsible Investment.

According to On Materiality and Sustainability: The Value of Disclosure in the Capital Markets, sustainability data can help diminish financial risks and improve investment opportunities. It can also reduce distrust in capital markets, cut excess speculation and short-termism, and help prevent financial crises, the paper said.

There were $3.07 trillion of assets under responsible investment management in the US as of 2010, demonstrating the widespread interest in sustainability information, the authors say.

However, the growing interest in disclosure beyond financial data has led to numerous methods of sustainability reporting that vary greatly between corporations and industries in the US. While the need for such disclosure is crucial in today’s market, inconsistency in reporting has raised more challenges than solutions, the white paper says. Much of the disparity is due to different interpretations of what is sufficiently “material” to report, as required by the Securities and Exchange Commission.

Poor corporate environmental and social governance disclosure remains the number one challenge to investing in emerging markets, according to a survey of global investors by research firm EIRIS released in October. For Evolving Markets: What’s Driving ESG in Emerging eEonomies?, EIRIS received 44 responses from asset managers, asset owners, index providers and other people associated with investment. More than 78 percent of surveyed investors mention poor ESG governance as a hurdle facing them when investing in emerging markets.

The opaque nature of ESG disclosure in emerging market companies is somewhat attributable to an imbalance in how these companies report on their activities in their home country and their operations in other countries, the EIRIS report said.

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