Recently the Financial Reporting Council (FRC) published a new report titled “ESG Data Distribution and Consumption” examining how investors obtain and use environmental, social and governance (ESG) data on companies, and highlights what actions companies can take to facilitate this.

The report highlights an ecosystem heavily dependent on third parties for comparable ESG data, and while investors use companies’ annual reports for qualitative context, most ESG metrics and data come from third-party providers who compile, standardize and derive data from company reporting investors occasionally use direct company data to check third-party accuracy.

Investors want companies to focus annual reports on ESG risks, opportunities and progress relevant to their business. Therefore, to not obscure relevant information, data sheets can be helpful in containing all ESG metrics in one place to facilitate third-party and investor data collection.

As investor demands on ESG data continue to grow, strong interconnectivity between narrative and data reporting is critical to avoid greenwashing and maintain credibility.

The Financial Reporting Council (FRC) recently published a thematic review, assessing the quality of climate-related metrics and targets disclosures.

The review analysed TCFD disclosures from 20 companies’ 2022 annual reports across four sectors: materials and buildings, energy, banks, and asset managers. It identified areas of better reporting practice as well as opportunities for improvement.

Key findings show an incremental improvement in the quality of companies’ disclosures of net zero commitments and interim emissions targets. However, disclosures of concrete actions and milestones to meet targets were sometimes unclear, and comparability of metrics between companies remains challenging. Given the large volume of information presented, many companies are finding it challenging to explain their plans for transitioning to a low-carbon economy clearly and concisely.

The review also found that explanations of how climate targets affect financial statements still need improvement. Boilerplate language on climate being “considered” provides little insight on impacts.