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Beyond ESG: Streamlining Financial Decision-Making With a Shared Understanding of Value

Many institutions already use sustainability or environmental, social and governance (ESG) tools and methodologies to help financial institutions (e.g. asset owners and managers, bankers, insurers) evaluate which environmental and social risks might affect a company’s revenue and costs, and how the company is managing those risks. However, they do not currently consider or evaluate to what extent the activities they are invested in have a positive or negative impact across nature or society.

This report summarises exploratory work, conducted to understand what is needed to bridge this gap and to ensure that the ESG information that businesses share with their investors, lenders and insurers clearly communicates the value of organizational impacts and dependencies across natural, social, human and produced capital.

As a first step, we consulted with a range of stakeholders across business, finance and rating sectors. We also reviewed existing initiatives, frameworks and standards, and explored the extent to which impact and dependency information is currently generated, shared and applied.

Two main themes merged from the discussion: (i) having the right type and amount of data and (ii) creating alignment on impact and dependency measurement and valuation.

Following the consultation, three levers were identified that we believe must be engaged in order to deliver an effective information flow:

  1. Advocate for a consistent value-based conceptual framework that translates measurement and valuation of impacts and dependencies on natural, human, social and produced capital to an agreed set of ESG factors.
  2. Consolidate existing work to develop clear and consistent guidance for investors on how to measure outcomes and impacts to deliver reliable ESG data.
  3. Educate the market on the meaning, relevance and effect of ESG information on investor decision-making.

Next steps:

Building on these levers, potential solutions to further progress the situation were identified, including:

  1. Facilitate dialogue and collaboration for business and finance leaders.
  2. Advocate for mandatory impact and dependency reporting.
  3. Build an open-source standardized valuation database and global digital sustainability data flow system.
  4. Improve and scale accessibility to analytical tools.
  5. Develop learning tools and capacity-building opportunities

These five solutions will be explored for the continuation of the work to progress the situation.

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