When the Open Data Institute (ODI) was founded 10 years ago, its focus was on reforming and improving public services through greater transparency and accountability around data. It didn’t take long for that remit to be expanded into sharing data across organisations and sectors. It influenced policy around open data and data sharing in the banking industry, which inevitably led to the thriving market for alternative financial services that we have today.
A great deal of its work in recent years has highlighted the need to work more responsibly with data; its Data Institutions programme, for example, brings together evidence and examples of great data stewardship from across the world for others to learn from. When it comes to environmental, social and governance (ESG) data and when organisations and people talk about ESG data, a lot of the work to date has focused on environmental data.
Quality and consistency of data in the environmental/ESG space is currently a massive issue, explains Stuart Coleman, the ODI’s Learning and Business Development Director. “There’s no global consensus on standards. Everyone agrees there is the concept of scope one, two and three emissions, but it really needs a set of agreed general standards in the same way that accountancy has its Generally Agreed Accounting Principles. The way we report on environmental data needs to quite quickly go through the same journey that accountancy went on many years ago.”
The silver lining is that regulation around ESG is starting to come in, led by efforts in the UK and the EU, providing a breadcrumb trail for other jurisdictions to follow.
The challenge with environmental data compared with financial data is that it’s harder to see where the data comes from, Coleman explains. “The provenance of the data, how it’s collected, having confidence that the data has been put together in a consistent, trustworthy way – it’s slightly more challenging with environmental data than when you’re perhaps looking at a system of record, which has a pounds and pence number in it.”
Environmental reporting needs its own version of extensive business reporting language (XBRL), says Coleman, but standards and regulation have to drive it. The level of income generated for professional services firms from auditing ESG is still low, he says, which indicates that sustainability reporting has not reached the level of maturity that it requires.
“Some companies are making a good fist of it and they’re talking a good game, but when you actually cut through to what they are actually doing, how accountable it is and how strong is the body of evidence, it’s less convincing.”
The ODI has a long-term working relationship with Refinitiv, part of the London Stock Exchange Group, which has a focus on informing investors to improve ethical decision-making. This includes ESG portfolio investments. By sharing its data with research communities, it can help build more trust and confidence in companies’ non-financial reporting.
“We welcome those types of actions, where organisations perhaps traditionally wouldn’t have been as open. There’s a co-operative in the UK called Subak, which is a data co-operative for sharing data to tackle climate change. There are more and more legal structures emerging.”
Businesses of all kinds and sizes are also starting to gather ESG-related data, which is a good start, says Coleman. Big businesses will naturally create a network effect when it comes to this data, as organisations across their supply chains have to provide appropriate data to support their clients’ sustainability reporting.
“It will create, over time, a cascading effect on the rest of the economy,” says Coleman. In many ways, it formalises what organisations like the carbon disclosure project were doing many years before, without the regulatory helping hand. It’s just going to take quite a long time. The question is: how do you accelerate that?”
We need to see more incentives for small-to-medium companies to start reporting against the frameworks mandated for larger organisations, says Coleman. They don’t necessarily have the tools or resources needed to deal with that data efficiently. More accessible data tools will help to drive adoption of non-financial reporting at the smaller end of the scale, he explains.
“It’s quite tough if you’re a small organisation to do this really well. That, to me, is a major challenge towards getting this adopted. Whether it’s tax beneficial for companies to do it, or other incentives are linked to this, it could help nudge smaller companies to adopt it. Otherwise, I think it’s just not material enough at the moment.”
A key role for the ODI is to bring together interested parties to professionalise working responsibly with data, particularly when it comes to ESG. Again, it needs to align with the professional standards of accountancy, which would help to build trust in non-financial reporting, says Coleman. “If in 20 to 30 years’ time, we’re recognised in the same way that professional accountancy bodies are, we would hopefully have done something right.”
Celebrating the financial leaders who are building sustainable economies
The Finance for the Future Awards recognise the organisations and individuals that are supporting the integration of sustainability into financial decision making.
Discover more from ICAEW Insights
Insights showcases news, opinion, analysis, interviews and features on the profession with a focus on the key issues affecting accountancy and the world of business.
Hear a panel of guests dissect the latest headlines and provide expert analysis on the top stories from across the world of business, finance and accountancy.Find out more
News in brief
Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.See more
Stay up to date
You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.Sign up