Environmental, social, and governance (ESG) concerns in today's contemporary business landscape are integral to sustainable practices. Understanding different types of ESG data, their sources, and the underlying challenges associated with leveraging them is critical for organizations striving for sustainable business transformation.
Sources of ESG Data
Internal Data
- Enterprise Disclosures: Many businesses disclose ESG data in their annual sustainability reports and financial statements. These disclosures offer stakeholders insights into the organization's commitment to sustainability and responsible business practices.
- Internal Assessments: Organizations conduct internal audits and assessments to evaluate their own ESG arrangement. These evaluations present critical insights into areas of progress and guide strategic decision-making.
- Employee Feedback: Gathering employee feedback through surveys presents a unique perspective on the organization's social impact. Employees often judge a company’s commitment to diversity, inclusion, and ethical practices.
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External Data
- Third-party Ratings: Independent organizations evaluate and rank businesses based on ESG performance. These ratings, including those from ESG research firms, offer investors and consumers a relative analysis of different organizations, aiding informed decision-making.
- Regulatory Filings: Governments globally are increasingly mandating ESG reporting for organizations. Regulatory filings offer standardized frameworks to report their ESG performance.
- Supply Chain Data: External data can be sourced from the supply chain, evaluating the sustainability practices of suppliers and partners. A sustainable supply chain is critical for an organization’s overall ESG performance.
Challenges in Utilizing ESG Data for Sustainable Business Transformation
In the current business context, ESG (Environmental, Social, and Governance) data is imperative for organizations seeking to establish credibility with stakeholders and present compliance towards sustainable, responsible operation. With the growing prominence of regulatory requirements for ESG disclosures, this urgency on businesses demands compliance with the latest standards of transparency in all of their operations.
Yet the obstacles are huge, including complexities in data collection, evolving ESG regulatory standards, and identifying which issues should qualify as material. These critical challenges combined render ESG reporting a complex affair. Organizations that overcome these challenges need to build their brand reputation and investor confidence and develop strong relationships with their stakeholders.
- Data Accuracy and Consistency: Ensuring consistency of ESG data is a significant challenge. Different reporting standards make it challenging to compare and benchmark their performance against industry peers.
- Integration into Decision-making Processes: Integrating ESG data considerations into core business frameworks and decision-making processes is a hurdle for many. Achieving alignment between ESG goals and business objectives demands a comprehensive mindset shift within the organization.
- Data Privacy: With a growing focus on data transparency, ensuring the privacy and security of sensitive ESG data poses a significant concern. Organizations need to integrate robust frameworks to protect this data from breaches and unauthorized access, besides having a complete understanding of the traceability of the ESG data.
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- Lack of Standardization: The absence of standardized ESG reporting frameworks makes it difficult for organizations to present their data consistently. Harmonizing reporting standards further helps facilitate accurate comparisons and benchmarking.
- Cost and Resource Constraints: Integrating robust ESG data and reporting frameworks is resource intensive. Small and medium-sized enterprises often face challenges due to budget constraints and expertise in ESG-related analysis and reporting.
The ESG Data Imperative
Despite the growing significance of ESG data in financial decision-making, institutions face significant challenges in data standardization, comparability, and historical availability. These issues further impact the accuracy and reliability of ESG assessments, making it difficult for investors to draw meaningful conclusions.
The ESG Data Insights Report 2025 offers findings from SG Analytics’ survey of financial institutions, examining the role of ESG in investment decision-making. The survey contains insights from financial institutions across different geographies, assessing their ESG adoption strategies, challenges, and future outlook.
Key Challenges in ESG Data Utilization
Lack of Standardization Across Companies
- 65% of institutions reported the lack of standardized ESG data as a major obstacle.
- Many companies disclose ESG metrics selectively, making cross-comparisons challenging. This inconsistency affects benchmarking, performance tracking, and investment risk assessments.
Comparability Issues Between Data Sources
- 57% of institutions found it difficult to compare ESG data across different providers, such as MSCI, Sustainalytics, and Bloomberg.
- ESG rating agencies use proprietary and often opaque methodologies to evaluate companies and sectors, resulting in inconsistencies in company scores.
- Investors struggle to determine which ESG rating provides the most accurate reflection of a company’s sustainability performance.
Insufficient Historical ESG Data
- 56% % of institutions cited limited historical ESG data as a key challenge.
- Without long-term ESG performance records, it is difficult to assess trends, risks, and sustainability progress over time.
- This is particularly problematic in climate risk modeling, where long-term data is required to project carbon transition risks.
Limited Availability of Industry-Specific ESG Data
- 49% of institutions reported a lack of ESG data tailored to specific industries
- ESG risk factors vary widely across industries, yet many reporting frameworks do not provide sector-specific insights.
High Costs of ESG Data
- 27% of financial institutions highlighted the cost of high-quality ESG data as a barrier.
- Subscription fees for ESG databases, research reports, and real-time data feeds create budget constraints for smaller investment firms.
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The Path Forward
To overcome these concerns and foster sustainable business transformation, it is critical for organizations to:
- Invest in Technology: Implementing advanced data management and analytics tools will help enhance the accuracy, consistency, and security of ESG data.
- Collaboration for Standardization: Participating in industry collaborations for standardized ESG reporting frameworks will help streamline the reporting process.
- Educate and Engage: Educating internal and external stakeholders, including regulators, on the significance of ESG data will help nurture a culture of transparency.
- Integrating ESG into Corporate Strategy: Embedding ESG considerations into the core corporate strategy will help ensure proper alignment with objectives and long-term sustainability goals.
Final Thought
Embracing the ESG framework is not just a compliance requirement but a critical opportunity to thrive in an era where sustainability and responsibility are imperative for long-term success. By navigating these challenges associated with ESG data and adopting a forward-thinking approach, organizations can collate reliable data across different sources. Combining both structured and unstructured data will equip businesses to have a complete view, paving the way for a sustainable and resilient future.
A leader in ESG Services, SG Analytics offers bespoke sustainability consulting services and research support for informed decision-making. Contact us today if you are searching for an efficient ESG (Environmental, Social, and Governance) integration and management solution provider to boost your sustainable performance.
About SG Analytics
SG Analytics (SGA) is an industry-leading global data solutions firm providing data-centric research and contextual analytics services to its clients, including Fortune 500 companies, across BFSI, Technology, Media & Entertainment, and Healthcare sectors. Established in 2007, SG Analytics is a Great Place to Work® (GPTW) certified company with a team of over 1200 employees and a presence across the U.S.A., the UK, Switzerland, Poland, and India.
Apart from being recognized by reputed firms such as Gartner, Everest Group, and ISG, SGA has been featured in the elite Deloitte Technology Fast 50 India 2023 and APAC 2024 High Growth Companies by the Financial Times & Statista.
