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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Don't let perfect be the enemy of good. So if you're like me and having conversations in the sustainability world these days, there's a good chance you've heard this refrain used in reference to ESG data. The underlying idea here is that ESG data isn't yet perfect, gaps exist, thanks to a lack of standardized disclosure as well as technology that continues to evolve. At the same time, the thinking goes, that shouldn't stop the world from continuing to iterate and improve. And in fact, if you listened to our episode of this podcast last week, you heard our guests make that very remark or versions of it.

This idea also came up several times at the recent GreenFin conference I attended in New York at the end of June, including from one of the event speakers, Curtis Ravenel. Now Curtis is Senior Adviser for the Glasgow Financial Alliance for Net Zero, or GFANZ. He's also a member of the Secretariat for the Task Force on Climate-related Financial Disclosures, or TCFD, and he's been our guest on this podcast previously. We'll include a link in our show notes to our previous interview with Curtis.

Today, we're picking up the thread with a conversation about the evolution of ESG data and standards.

Esther Whieldon: A couple of quick notes for transparency before we dive in. GFANZ is a coalition of financial institutions committed to accelerating the decarbonization of the economy. S&P Global is a member of the Net Zero Financial Services Provider Alliance, which is a part of GFANZ. And S&P Global Sustainable1 was also a sponsor of the GreenFin conference.

Lindsey Hall: Thanks, Esther. Also, I just have to say that the first 5 minutes you're about to hear of this interview, for me, it was a great primer on how ESG standard setting bodies evolved, along with all other acronyms. So if you've ever needed a 5-minute tutorial on just how we got where we are today, stay tuned.

So Curtis, thank you so much for joining me today for this episode of the ESG Insider podcast. Now you've been a guest on the podcast before. But for our listeners who are not familiar, do you mind please just starting by introducing yourself and telling us a little about your role?

Curtis Ravenel: My name is Curtis Ravenel, and I've been in the sustainability space for nearly 20 years now. I am currently a Senior Adviser to Mark Carney and Mary Schapiro, who are Chair and Vice Chair of the Glasgow Financial Alliance for Net Zero, or better known as GFANZ. I'm also on the Secretariat of the FSB Task Force on Climate-related Financial Disclosures, or TCFD. And then I have a number of other roles as well. I'm staying active in the space.

Lindsey Hall: Great. Well, I had the chance to meet you in person at the GreenFin event in New York on June 28. And one comment you made on stage during the event made me laugh. I believe the quote was, "If there's an acronym in the sustainability disclosure space, I was usually involved." Can you tell our listeners, what do you mean by that?

Curtis Ravenel: Well, I mean, having sort of grown up at Bloomberg, which is a financial data and information service business, and we launched the ESG data product, one of the first things we discovered -- this is really back in 2009. We -- first thing we discovered, the data was really not very good.

And there were a number of initiatives underway to try to create frameworks and standards for the disclosure of ESG data, but many of them were struggling. So there was the Global Reporting Initiative, or GRI. There's the Carbon Disclosure Project, or CDP. And of course, the Principles for Responsible Investing was launched a bit earlier than that. They collected investor-related data. Then we have the emergence of SASB, the Sustainability Accounting Standards Board, and ultimately, TCFD.

And so we love acronyms in the sustainability disclosure space. And I found myself engaged with all of those groups in different ways, first, initially to try to pull some of the data that they did have and using GRI as our framework for data collection on the Bloomberg terminal and then striking a deal with CDP to provide some of the data around emissions and when they extended into other areas like water and forest, to bring in that data as well.

But in the end, what was important to me, as somebody who is working in the commercial enterprise, was that we wanted really deep integration of ESG factors into investment decision-making. And in order to do that, if you want the whole financial system to embrace ESG, a focus on financial materiality really becomes really important and, frankly, depoliticizes a very political issue, right? Sustainability for better or worse is a very political issue for some folks. And so -- but what we found was that market participants all care about financially material information, whether it's ESG or otherwise.

And so in order to sell, frankly, into the whole market, we thought, if we could focus on the financially material information that, that would help a lot. And I discovered a new organization called the Sustainability Accounting Standards Board, founded by Jean Rogers, and she had a plan to look at sector-specific ESG-related information and try to make a determination through deep research and evidence-based approach on what sustainability issues were likely material or showed evidence of materiality on certain ESG factors. And we thought that, that was a really smart approach.

And so Bloomberg Philanthropies, Mike Bloomberg's philanthropic arm, decided to provide them with a significant grant to get off the ground and really build out their research and services and get that standard up and running. So I was on the Board and helped organize that grant with Bloomberg Philanthropies and then brought in a number of other key players like Bob Eccles, who's inaugural Chair, followed by Mike Bloomberg, who is the Chair. And SASB really sort of established the fact that ESG factors were not just about how companies impact society and the environment, which was the traditional approach to ESG, but really looked at how those environment and society could impact the financial performance of an underlying issuer.

Now that was kind of a big breakthrough. And that led, of course, to work around TCFD when the G20 asked the Financial Stability Board to look at climate risk, and the financial system, they decided to take a similar approach. So it was sort of a deep dive on climate. But given the experience that Mike Bloomberg and Mary Schapiro and myself had with SASB, we thought that we could take the skills we had learned in working with SASB and apply it more deeply to climate.

And so launched the TCFD at the Paris COP21, Conference of Parties, and came out with recommendations and guidance for disclosure in 2017. And as many of your listeners will now know, that's become the foundation for disclosure on climate for the SEC, also for the European Commission as well as the newly formed International Sustainability Standards Board formed by the IFRS. So quite proud of all of that work around disclosure.

Lindsey Hall: And you were on stage at the GreenFin event on a panel discussing some of those acronyms you've been involved in, GFANZ, the TCFD and the SEC, or the U.S. Securities and Exchange Commission. What was your main takeaway from your panel discussion? And did anything stand out for you that you heard from your fellow panelists?

Curtis Ravenel: Those of us who have been in this field for quite some time know, and you've heard me say this many times, don't let the perfect be the enemy of the good. The data challenges will continue. They are -- really, there's been incredible progress since we started the ESG product at Bloomberg in 2010. We were excited to be able to get some information, ESG information on 1,000 companies. We now have much more than that, probably 15,000 firms. And I'd say all the major data providers have ESG data, including S&P, at that level. The problem is it's not terribly consistent because it's really been voluntary up to now.

And so at some point, the market really needs more complete information set and needs to have it be a bit more standardized so that you've got comparability and consistency and trust in the data. So it needs to be audited and treated like financial information. If it's really financial and material to the market, it should be trusted and have oversight and governance like that a financial information does.

So I think on the one hand, you've seen a lot better information than we've ever had. On the other hand, it's still not complete. Now with all of that being said, we know what we need to do to drive more sustainable economic outcomes. And I think there's often -- as an industry, we've hidden behind a bit, maybe more than I think is necessary, behind the fact that, well, if we only have the data, we could do better.

I think we know what needs to be done. You don't need all the data. It certainly helps. It's an important component. But disclosure, in the end, is intended to facilitate better capital allocation decisions, right? And of course, efficient market theory is the capital will be allocated efficiently but that given available information, and that available information on the ESG and particularly climate side has been insufficient. And so you have friction in the system and still some inappropriate, I would argue, due to a lack of information, pricing of risk.

Now we know the risks, but anyone in the financial industry really likes numbers. There's an old attitude, I don't know what the answer is, but at the end of it is a number. And so getting those numbers right is important, but it isn't paramount, right? We know what we need to do, and that's what the Glasgow Financial Alliance for Net Zero is about. It's about actually taking the disclosure as a means to an end to saying, "Okay, now we have better information. How are we going to use that information to allocate capital towards more sustainable economic activities? And how do we use the influence of the financial sector to encourage companies that we lend, underwrite and invest in to allocate their own capital towards more sustainable economic activities?"

And so I think it's a natural progression. Disclosure was never the end goal. It really was intended to facilitate better decision-making. Now that -- it's time, we have enough information. The direction of travel is set. It's time to move that direction and now to put our monies where our mouth is and try to invest in a more sustainable future.

Lindsey Hall: So I also interviewed Evan Harvey for this podcast, and Evan is Global Head of Sustainability for Nasdaq and was also at the GreenFin conference. And when I told them I'd be interviewing you, he had one question for you. So here it is. He wants to know, will there be one standard someday? In other words, will there be generally accepted accounting principles for ESG with a series of KPIs or metrics that the world agrees on? Or will we always be in the situation with the kind of balance between a regulatory required filing and voluntary publication?

Curtis Ravenel: I don't think in the near term, we will have a single standard. It's important to point out that we don't have it in financial either. Some of your listeners will know that the U.S. is not part of the global system for financial accounting. We have what's called FASB, the Financial Accounting Standards Board, but the rest of the world, about 140 jurisdictions use the IFRS Foundation's International Accounting Standards Board, which is slightly different. Now they work closely together to make sure they're interoperable, but they're not the same. And I'd go even further and say that jurisdictions who adopt the IASB standard adopt the core baseline of that standard, but they tweak it, for lack of a better technical term, to suit their local economies and maybe any political objectives they have.

And it's important to note that there are a couple of levers for standard making and disclosure. There are international standard centers like the IFRS. But there's also regulation like the SEC. And then there's legislation like you have in Europe with the CSRD, Corporate Sustainability Reporting Directive. Those are different levers. The CSRD, because it's legislated, captures all companies, whether they're publicly listed or not. The SEC only can regulate publicly traded companies. And so it's only for those who are accessing the public capital markets that are required to disclose.

And then the standard setters hope to have adoption. In order to adopt those standards, you can either regulate, legislate, or there's also voluntary. There are some jurisdictions that may just not go there. Not to mention that this whole issue of all of these efforts that we've just described are primarily focused on financial materiality. Europe has gone a step further and said, we want not only information that may impact the company's financial performance, but we'd also like that other information, so they call it double materiality, that says how is your business activities impacting society and the environment. But not all jurisdictions will go that far. So you're going to have some differences here.

I think the key is, especially with regard to climate at this time, the foundations -- and widely adopted by the market, by the way, TCFD is being used by all of those efforts as the foundational work. They may manifest themselves slightly differently in the SEC rule versus, say, the CSRD or the ISSB, but they're not really that different. It's very similar information. Some of them have a different structure for that information. And they all are working together to make sure that they make them interoperable so that it doesn't put overdue burden on both the issuer, the discloser of the information, or the user.

So you're always going to have politics, frankly, and regional differences and different political economies that means that there will be some differences. But we have to look back on where we were, and there's been tremendous convergence with SASB, CDSB and the IIRC merging into the IFRS and then GRI really being the bedrock for a lot of the work in Europe. And so we've gone from 7 disclosure frameworks down to sort of 2 primary ones. And I think we'll probably see that, that will be more durable. That will last for a while. But 2 is a lot better than 7.

Lindsey Hall: I'm going to interject here to ask, did you catch all that? There's this evolving cast of characters here. The Value Reporting Foundation, as a standard setting body, formed in June 2021 when 2 well-known groups combined: that's the International Integrated Reporting Council, or IIRC; and the Sustainability Accounting Standards Board, or SASB, that you heard Curtis mention. And then in November 2021 during COP26, the IFRS Foundation, responsible for setting global accounting standards, launched the International Sustainability Standards Board, or ISSB. That's a body that builds on the standards and frameworks of others in the system. And as part of the move, the new Value Reporting Foundation we just talked about and the existing Climate Disclosure Standards Board, or CDSB, consolidated into the IFRS Foundation earlier in 2022.

Phew, okay, back to the interview. You have a lot of conversations with stakeholders across the sustainability world, but what themes are you hearing emerge in the last 6 months? What are people talking about?

Curtis Ravenel: Well, I think one of the most notable developments really in the last year or so is it is, I think, generally accepted that ESG matters. It matters to companies. It matters to investors, it matters to regulators, and it certainly has always mattered to stakeholders. Like there was a question several years ago about, does it really matter? I think that's been settled. It matters.

Now what we're seeing now that the sort of -- I wouldn't say it's entirely one, but now that we've made serious progress on disclosure, particularly stakeholders, NGOs, civil society and others, they always knew disclosure was just a means to an end. So now people are looking for action. They want to see financial institutions and companies implement sustainability strategies that drive more sustainable economic activity, and particularly around climate. We are really in trouble when it comes to our physical environment, and the impacts of that are going to be significant on our economy. And it's pay less now to get it right or pay more in the future. It's hard for us shortsighted market participants to try to think that way, and the right policy incentives need to be in place.

And so I think with groups like GFANZ and other participants in what the UN calls the Race To Zero, which is basically getting these nonstate actors to commit voluntarily to aligning their business activities and their financing activities with the goals of the Paris Agreement to limit warming to 1.5-or-lower Celsius by 2050, like that requires action today. You can't wait until 2050. And so you have new criteria saying, we need you to set an interim target by 2030 at the latest for your fair share of the 50% decarbonization needed to ensure the 1.5 trajectory. We want to see what kind of capital you're allocating. Are you shifting your capital allocation from unsustainable activities to more sustainable activities?

And so it's really about action now. And GFANZ and its sort of partners are focused on delivering impact, and that is the next step. We've gone from identification and disclosure of risk to how are we going to support a just, equitable transition and sustainable development goals as well.

Finance has a powerful role to play and so does corporate America, but they need support from policymakers in order to enact and deliver the results that they've committed to. And so part of what we're trying to do by creating this huge coalition is to show policymakers that we're here, we're ready to do our part and give them some headroom so that they can be more ambitious. And then ideally, you have this virtuous cycle where everyone tries to sort of raise the bar or in this case, lower the temperature.

And so I'm, on the one hand, quite concerned about progress. But on the other hand, you have to remember that a year and a half ago, I think there was, I don't know, 45 to 50 companies in the Race To Zero. And now we've got about 5,000. So there is a will there. But now what we need to do is develop the tools, and this is how GFANZ is different than TCFD. It's not just about disclosure. It's about how do you develop a credible, ambitious with accountability transition plan to deliver on the promises that you made. And so I think we've made a big leap into sort of what the ambition of the financial community is with regards to this transition. And I'm excited to see what the next couple of years takes.

I think what I'm hearing from stakeholders, lastly, is you need to move faster. And they're not wrong, right? But this is about systems change, and you need to bring the whole system in. And you're as strong as your weakest link. And so it's important for us to crowd in as many market participants as possible in order to make this real and make it happen.

Lindsey Hall: So you're seeing this coalescence around the importance of sustainability and around some of these goals. At the same time, you mentioned earlier in our conversation how ESG is becoming politicized. What is the path forward in the face of this?

Curtis Ravenel: I think the good news is the horse has left the barn, and as they say on this. Investors, stakeholders, everyone, as we discussed earlier, recognize that these issues are very important, not just important to society and the planet, but also important to long -- the long run and financial health of the economy and ultimately financial markets. So honestly, if we are unable to muster the political will to mandate ESG integration and disclosure, it doesn't matter. It helps a lot as far as speed. The transition is happening. It's a question of speed at this point. And so we need policy support to have the speed we need to protect the planet and create the more just society that I think we all would like to see.

But we're going to do the work anyway. There's too much value that have been discovered by not just stakeholders but also by companies and investors in what integrating these considerations into their investment lending and underwriting processes and business operations, frankly, for real economy players matters to them. So I am less -- I don't think we need to rely 100% on regulation or legislation to get this done, but it sure would help a lot with making sure that we get it done sooner and that we protect the things that we care most about.

Lindsey Hall: Finally, I wanted to bring up something you talked about when we last spoke in late 2021. You talked about the data challenges the sustainability world faces when it comes to measuring and financing net-zero goals. And you said that -- a point that you reiterated today, which is we can't let the perfect be the enemy of the good. In other words, data will continue improving over time. Obviously, a lot of regulatory and legislative developments in the last 6 to 9 months. Has that incremental improvement in data happened during that period?

Curtis Ravenel: Yes. I mean the data continues to get better all the time. And if you're a company of any scale or size, you've seen the writing on the wall. And so you're beginning to -- just the signal that regulators are paying attention to this creates more and better data, even without the actual proposals and regulations being put into place.

I would like to take the opportunity to note that there was an announcement in early June, an agreement basically between the major data providers, and S&P Global is part of that, and we thank you for your contribution to it. We're going to work together with all the major data providers as well as some of these multinational groups like the IMF and the OECD and the FSB and the UN as well as the alphabet soup of NGOs who work in data to collectively create an open data platform for climate transition-related information. And so this is a big deal because all the groups -- while the data ecosystem has really matured, most of it's behind a paywall. And so that creates problems of access for civil society and maybe for smaller firms that may not have the resources to pay for those services.

And frankly, there's a lot of suspicion from civil society around these pledges and around the commitments of corporates and financial institutions. And by creating an open data platform with key information related to the performance against the commitments that all these firms have made, we hope to create a little more trust and transparency and accountability within the system and have a free resource for people to be able to monitor and measure progress being made by these companies that have claimed that they're going to do more.

We think that's healthy. And I think it's important, not only will this data create transparency and accountability, but it will be downloadable, accessible to all. And I would expect researchers, academics and others to use that data to look at trends, to help inform policymaking, to help inform investment decisions and all kinds of other things. It's a really exciting and big deal.

And we're going to be launching the white paper at the UN General Assembly week in New York in September about what that platform is going to look like with initial population of information and data the following year. And this will go on for quite a while, and we'll hopefully add data over time, but it's a very exciting development that says, hey, this is important information that we needed for all stakeholders, not just those who are in the financial markets and can afford to purchase data from third party.

So I'm really excited about it. I'm very proud that all of the financial information service providers agreed -- not only agreed, but like really are enthusiastic about participating in this much-needed public good.

Lindsey Hall: That's great. So someone who wanted to learn more or access this platform, what would they need to do?

Curtis Ravenel: Well, right now, there's unfortunately not a lot that they can do. They need to wait until September when we release our white paper, and we'll have -- we'll be setting up an information portal. But we just announced this in June, and now we're hard at work figuring out how it's all going to work.

Lindsey Hall: Curtis also talked to me about another development that happened in June 2022. GFANZ released guidance on credible net-zero transition plans, asking for public input. Here's Curtis again.

Curtis Ravenel: GFANZ released a whole slew of documents on June 15 around transition plans on what a credible, robust and ambitious transition plan should contain and hold. It also released a number of technical supplements to help financial institutions implement those transition plans and measure progress against it. That is out for public consultation until July 27.

It's extremely important. While we think we did a great job in coming up with this framework, it can only be improved if market participants participate in our consultation and give us feedback on how to make it even better. And you can go to the GFANZ website, which is gfanzero.com and look for the survey, and please participate. I know it's a busy season, but this is important work. And we'll form the basis, frankly, for the next sort of slew of regulated transition requirements.

All of those groups that we talked about earlier, the SEC and Europe and the IFRS have all proposed transition planning within their frameworks, but they haven't provided any detailed guidance on what their expectations are. This is a chance for private sector to inform them about what would be practical and doable. And so engagement by your listeners in that consultation would be very welcomed.

Lindsey Hall: Thank you for sharing that. And we'll include a link to that in our show notes. Anything else, Curtis, that we haven't talked about that you think is important for our listeners to know about the fast-evolving regulatory and sustainability environment?

Curtis Ravenel: Yes. My parting comment would be that this is about building institutional capacity within your organization to work on these issues because the one thing we know about this field is that it is fast evolving, and things will change. And as soon as, for example, the IFRS puts out its climate disclosure standard, they're going to move into other environmental areas, then move into the social.

And so this is -- this field is evolving really fast. And so it's not about what is my requirement today, but it's about building institutional capacity and muscle within your organization to engage proactively in the evolution of the field.

Esther Whieldon: So to sum up what we heard from Curtis, he said ESG data is improving, and he sees serious progress on disclosure. He pointed to growing convergence around ESG standards, and you heard him say the transition is happening, but it's just a question of speed at this point. Yet at the same time, Curtis acknowledges that there is tension in the fast-evolving ESG landscape.

Lindsey Hall: That's right. And these are all topics we'll continue to explore on this podcast.

Thanks so much for listening to this episode of ESG Insider, and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

 

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