Courteney Keatinge is the director of Glass Lewis’s environmental, social and governance research, and covers shareholder proposals across a range of markets. Keatinge is also the author of issue reports on topics such as political contributions, sustainability reporting, proxy access and hydraulic fracturing.
We interviewed Keatinge on the intersection of corporate reporting and big data. Big data refers to the large amount of data that companies are exposed to on a day-to-day basis that may impact shareholder relations. Specifically, Keatinge discussed the influence of reporting ESG (environmental, social and governance) data on shareholder relations.
Christopher P. Skroupa: How does big data impact corporate reporting?
Courteney Keatinge: There has been a significant increase in the amount and quality of ESG data provided by companies in recent years. As shareholders are beginning to look harder at these issues, companies have responded with ever more nuanced and detailed reporting. As such, companies who fail to provide adequate data to shareholders, whether through an intermediary ESG data provider, or through its own corporate reporting, are increasingly becoming outliers. There is a question, however, as to what adequate data entails and as to what type of information investors find most decision-useful.
Companies would benefit by discussing ESG reporting in their engagements with their large investors. It is important for companies to understand what data providers their investors are using and how they are using that data. Most large investors use one or more data providers in order to assess companies’ exposure to ESG-related issues. Some investors will look at high-level scores developed by the data providers, while others will make their own determinations of a company’s risk to ESG-related issues based on the more granular data sourced from these providers. As such, it is important that companies have an understanding of what data these providers have and how they are interpreting that data.
At many companies, review of this data used to be something that was siloed in their sustainability departments. However, given the increasing importance of this data to proxy voting teams and to a growing number of portfolio managers, companies will want to ensure that the investor relations and corporate secretary functions are able to speak to this information.
While more and more companies are providing ESG reporting, it is highly inconsistent. There is no standardized reporting framework for companies with respect to ESG issues. However, there are a number of notable initiatives aimed at standardizing this data, the most prominent of which is arguably the Sustainability Accounting Standards Board (SASB). In recent years, SASB has developed industry-specific ESG metrics on which it is asking companies to report. These industry-specific metrics have set SASB apart from other reporting frameworks in that they are aimed at issues that are material to a company’s operations.
However, the issue that SASB doesn’t necessarily address is that investors are increasingly aggregating large amounts of granular data in order to gain a more holistic view of their investments, some of which may not be material to a specific company’s operations. For example, data aggregators allow investors to understand their entire portfolio’s risk exposure to certain issues and also allow them to measure the impact of their investments on issues like carbon emissions or water usage.
This leaves companies in a difficult position, because they are being asked to report on issues that may not have any type of meaningful impact on their operations, and, in order to report against these frameworks, would be required to expend significant resources in order to measure things with negligible benefit or importance to the company.
Skroupa: Do big data findings have an impact on reporting initiatives?
Keatinge: Absolutely. The most notable recent example of this is the Climate Action 100+, an initiative aimed at reducing the GHG emissions of the 100 largest emitting companies globally. It was found in 2017 that just 100 companies were the source of more than 70% of the world’s GHG emissions. As a result, investors have targeted these companies in an effort to encourage them to, among other things, provide enhanced disclosure that is in line with the recommendations of the TCFD. This reporting is aimed at allowing investors to assess the robustness of companies’ business plans against a range of climate scenarios. However, given the growing focus on issues related to ESG and the relatively new ability of investors and policymakers to access and assess the data provided by companies, it is likely that this is only the beginning of reporting and regulatory initiatives that are influenced by big data findings.
Skroupa: What effect do big data and data analytics have on shareholder relations?
Keatinge: Investors are increasingly relying on the data provided by companies to make investment and voting decisions. This is particularly true with respect to ESG issues. The rise in the availability of ESG data has allowed investors to better develop processes to identify outliers and target engagements on issues that they view as material. However, investors are constantly looking for standardized data that will allow them to compare equities across their portfolios. Given that most large investors have thousands of equities in their portfolios, a standardized framework for analyzing these companies assists them in finding the companies that they view as needing the most attention.
Further, although information is important to assess and is valuable at the individual equity level to assess individual companies, many investors are also using this data in the aggregate to get a better picture of their holistic portfolio risks. For example, data aggregators allow investors to understand their portfolio’s risk exposure to certain issues and also allow them to measure the impact of their investments. For example, there has been a movement toward investors assessing the carbon footprint of their portfolios. With initiatives such as the Climate Action 100+ and pressure on financial institutions to report to the TCFD, this type of data is of increasing importance.
Courteney Keatinge will be speaking on a panel entitled Big Data and Data Analytics: Its Impact on Corporate Reporting at the Future of Corporate Reporting Conference in New York, NY on July 10.
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