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As Quoted in the Financial Times https://www.esg-specialist.com/sustainable-companies-are-more-expensive-says-study/ 
<h2>New research from Schroders suggests investors should dig down into sectors and individual stocks to find well-priced sustainable opportunities.</h2>
Companies ranked strongly for sustainability credentials trade at a higher multiple than those that perform less well – but many opportunities remain for investors, according to new research.
An <a href="https://www.schroders.com/en/media-relations/newsroom/insights/are-more-sustainable-companies-more-expensive/" target="_blank" rel="noopener">analysis</a> of valuation metrics for companies on the MSCI ACWI index, conducted by Schroders, found that for almost every major industry sector the top 25 per cent of stocks by environmental, social and governance score were valued significantly higher than the bottom 25 per cent. ESG scores were assessed by FTSE-listed asset manager Schroders’ proprietary SustainEx model.
However, Schroders head of strategic research Duncan Lamont said this did not mean there were no attractive investment opportunities for sustainability-focused investors.
“These industries are portrayed as the bad guys when it comes to environmental impact,” Lamont said. “They are under the spotlight more than most. So it goes to figure that the market will have differentiated more between them, marking up those who are better placed to navigate the coming decades, and [marking] down those who risk being in the firing line.”
Measuring across quartiles did not show the whole picture, Lamont added. While the data indicated that “the market gets many of the big-picture calls approximately right”, there were still many areas in which ESG risks were not adequately priced in.
<h3>Opportunities in the detail</h3>
Lamont said this still gave companies an incentive to improve their ESG credentials, while investors could still be rewarded for engaging positively with companies to encourage these improvements. This was especially evident when drilling down into each of the three pillars of ESG.
Diana Rose, head of ESG research at sustainability data specialist Insig AI, said focusing in on specific elements of ESG was “key to isolating attributes that may still be undervalued by the market”. While climate change had been dominating most ESG investment discussions over the past few years, she said, there were other “key environmental issues being overlooked at the moment”.
“The savvy investor will be anticipating emerging regulation such as the Taskforce on Nature-related Financial Disclosures,” Rose said. “While the herd is following the carbon price, some digging will reveal there are some environmental areas, such as water and waste, that present tangible and imminent risks and opportunities – particularly for certain industries.”
However, for social issues, investors needed to do more digging to unearth risks as disclosures and data were patchier, making it harder to identify risks and opportunities, she said.
“There are more frameworks getting traction to define what ‘good’ looks like in this space, but still a greater demand on the investor to unearth evidence that companies are leading or lagging against their peer group,” she added. “This comes down to primary research and due diligence – reading between the lines of glossy reports to spot the gaps that might present material risks alongside impressive stats on social investment.”
<h3>Better data, better valuations?</h3>
Schroders’ research echoes many academic papers of recent years, which have reported links between companies’ ESG credentials and improved investment performance. A <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3235190" target="_blank" rel="noopener">paper</a> published in November 2019 found that institutional investors overall did not believe that equity valuations fully reflected climate-related risks.
The authors – Philipp Krueger of the University of Geneva, Zacharias Sautner of the Frankfurt School of Finance &amp; Management, and Laura Starks of the University of Texas – said investors believed sectors such as oil and gas, car manufacturing, and utilities tended to be overvalued considering the climate-related risks they faced.
They said the results indicated that the investment industry was “still at [the] early stages of incorporating these risks into their investment processes”, with larger asset owners tending to be “better prepared for the transition to a low-carbon economy”.
Chris Bennett, managing director of sustainability consultancy Evora Global, said good data was the cornerstone for identifying sustainable companies.
“Increasingly, institutions are putting pressure on investment managers to supply ESG data and have a stack of questions about sustainability,” he said. However, he said there hadn’t been a significant impact on valuations – particularly in areas such as real estate, where he said “climate risk is not being priced in”.
Disclosure laws
Several jurisdictions are implementing reporting and disclosure rules to improve the amount of information available to investors to assess climate and sustainability-related risks.
In the UK, the government implemented rules to require reporting in line with the recommendations of the Task Force on Climate-related Financial Disclosures at the start of this year. The rules apply to all reports for financial years beginning on or after 6 April 2022, and Bennett said some companies might be “viewed in a different light” after this information is published.
“I am pleased the recommendations of TCFD have now been enshrined into law,” he said. “It’s the sort of approach we need where companies must provide markets with proper information with regards to their climate risk.”
The EU requires listed and financial companies to report non-financial information, and is working on creating its own sustainability disclosure standards, while the US Securities and Exchange Commission is currently considering climate-related reporting requirements for listed companies.

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Sustainable companies are more expensive, says study

As quoted in Computer Weekly &#8211; https://www.computerweekly.com/blog/Green-Tech/Using-AI-to-discern-if-enterprises-are-walking-the-talk-on-ESG 
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In the transition to net zero, the investment community needs ESG information that allows them to meaningfully appraise a firm’s progress against targets and, in turn, be able to hold them to account. However, there are complaints of ‘aggregate confusion’ from investors around the myriad of ESG ratings, using a range of different approaches to adding up data points into ESG scores.
Artificial intelligence (AI) is emerging as a powerful tool in the evolution of meaningful ESG assessment, revealing more granular snapshots of data, such as whether companies are fulfilling their net-zero promises.
<h2 class="section-title">Assessing ESG ratings</h2>
ESG scoring has enormous potential to unlock a significant amount of information on the management and resilience of companies when pursuing long-term value creation. It can also represent an important market mechanism to help investors better align their portfolios with environmental and social criteria that match with sustainable development.
However, the investment community is faced with the dilemma of ESG ratings varying strongly depending on the provider chosen. This happens for reasons that are often obscured in the methodology and aggregation of data, such as different frameworks, key indicators and metrics, data quality, qualitative judgement, and weighting.
These differences make it nearly impossible for investors to have confidence in the way they are managing the material ESG risks within their investment mandates, and can lead to missed opportunities as well as nasty surprises.
<h2 class="section-title">AI supports the thoughtful analyst</h2>
At the global business and political summit of COP26, a key focus area was around strengthening the impact of ESG investment, calling for greater efforts toward transparency, consistency, and comparability, alongside the announcement of a convergence of reporting standards.
Attention was placed on corporate disclosures as the real temperature check, both for businesses and the investors that finance them.
However, gathering evidence from corporate disclosures is a combination of quantitative science and qualitative art, which places a high demand on the time and efforts of the analyst.
While the bar is being raised in ESG assessment, AI has also been busy, fast developing into a versatile partner for the investment analyst.  Machine learning is a branch of artificial intelligence based on the idea that systems can learn from data, identify patterns and make decisions with minimal human intervention; and it’s becoming more available.  The advent of cheaper off-the-shelf algorithms, combined with advances in computational power, mean investment managers and analysts have new superpowers.
This has not gone unnoticed by the powers driving UK PLC’s transition to net zero – The Task Force on Climate-related Financial Disclosures (TCFD)  is a disclosure body who itself uses AI to verify whether large number of organisations include its recommendations in their reports.
Proprietary machine-learning models can process and visualise huge amounts of messy qualitative data, taking a lot of the grunt-work out and enabling more transparent, robust and timely analysis. When directed thoughtfully, the insights that AI offers can enable investors to make more informed investment decisions and reduce the dependence on a high-level ESG score.
<h2 class="section-title">Directions of travel</h2>
One of the more insightful ways to consider ESG data is to analyse change over time through a company’s disclosure history – this can reveal gaps that may flag up greenwashing, as well as meaningful improvements compared to a peer group.  A search for trends like this is just one example of analysis that’s painful to tackle manually but lends itself beautifully to technology.
To illustrate this, let’s take a look at the collective volume of the FTSE 100’s net zero-related disclosures across all reports published since 2015.  Using a keyword approach, we can class these into generic terms, labelled ‘Net Zero Talk’, and phrases that carry more weight and accountability, ‘Net Zero Walk’.
The two trajectories are striking, and when this analysis is taken down to company level, this data equips investors with a new perspective on the gap between rhetoric and accountability, so they have better agency to ask the right questions.
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<img class="wp-align wp-image-173 aligncenter" src="https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-1-300x191.jpg" sizes="(max-width: 542px) 100vw, 542px" srcset="https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-1-300x191.jpg 300w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-1-1024x653.jpg 1024w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-1-768x490.jpg 768w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-1.jpg 1343w" alt="" width="542" height="345" />
Fig 1. Count of Net Zero related phrases mentioned each year in Annual Reports, Sustainability Reports, ESG documents and Earnings Call Transcripts. Net Zero Talk: ‘net zero’, ‘low carbon’, ‘climate change’; Net Zero Walk: ‘science based target’, ‘climate scenario’, ‘decarbonisation’, ‘carbon transition’, ’climate transition’. Source: InsigAI
Given the high materiality and profile of workforce issues such as human rights, diversity and pay among certain sectors, using AI to view disclosures with a social lens is also revealing.   Changes in the social narrative of the consumer staples sector of household names between 2018 and 2020 show the scale of the gap between apparently leaders and laggards on social disclosure, particularly with some companies accelerating their reporting significantly in 2020.
<img class="wp-align alignnone wp-image-174 aligncenter" src="https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-2-300x185.jpg" sizes="(max-width: 541px) 100vw, 541px" srcset="https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-2-300x185.jpg 300w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-2-1024x630.jpg 1024w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-2-768x473.jpg 768w, https://itknowledgeexchange.techtarget.com/greentech/files/2022/05/Graph-2.jpg 1327w" alt="" width="541" height="333" />
Fig 2. Count of social impact related phrases mentioned each year in Annual Reports, Sustainability Reports, ESG documents and Earnings Call Transcripts.  Phrases:  ‘human rights’, ‘forced labour’, ‘diversity’, ‘pay gap’. Source: InsigAI
<h2 class="section-title">Nowhere to hide</h2>
Geopolitical summits like COP26 have made it clear that the spotlight is firmly on company disclosures regarding net zero, with the idea that those driving the transition are rewarded by the market. This requires investor scrutiny. Science-based metrics are essential, but so is the qualitative assessment of the context and direction of travel contained in disclosures.
Stock-pickers are pouring more and more into companies making most progress regarding ESG, so the potential for greenwashing will increase. Last year, the UK’s Competition and Markets Authority found that <a href="https://www.gov.uk/government/news/global-sweep-finds-40-of-firms-green-claims-could-be-misleading">40%</a> of environmental information on corporate websites was deemed to be misleading.
By using machine learning algorithms and natural language processing, businesses and investors now have tools at their fingertips to surface and expose evidence of empty promises and hold companies to account. In the evolution of the ESG space, the benefits of access to powerful technology to decision-makers is playing its part. Now it’s time to read between the lines to find who’s really going to move the needle.

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Using AI to discern if enterprises are walking the talk on ESG

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As quoted in <a href="https://www.pensions-expert.com/Law-Regulation/What-does-the-future-of-ESG-disclosure-look-like?ct=true">Pensions Expert &#8211; Link</a>
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For trustees, the rise of environmental, social and governance factors within the pensions sector has resulted in a shift in agendas, with compliance and regulatory matters growing in prominence.
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Fifty-three per cent of trustee boards now consider ESG an important agenda item, according to <a href="https://www.bmogam.com/uploads/2021/07/32a8fdc88ae69de2acd5b732bb30c730/pmi-bmo-report-2021.pdf" target="_blank" rel="noopener">research</a> produced by the Pensions Management Institute and BMO Global Asset Management in 2021.
This is up markedly from 2020, when ESG was important for just 29 per cent of trustee boards.
With current regulatory shifts and changes to disclosure standards driving up the importance of ESG matters, trustees are now thinking in earnest about what ESG disclosures will look like in the future.
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&#8216;Company disclosures will need to evolve to demonstrate a full assessment of the key dimensions material to a company&#8217;
<div class="quotation right" style="text-align: right;">Thomas Höhne-Sparborth, Lombard Odier</div>
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<h3>Turning up the volume</h3>
The trend of climate-related reporting across the FTSE 100 over the past few years illustrates a potential trajectory for the scale of ESG disclosures being made.
Between 2015 and 2020, disclosures quadrupled, according to Diana Rose, head of ESG research at Insig AI.
“Climate disclosure will keep increasing in the UK over the next five years, driven by the Task Force on Climate-related Financial Disclosures becoming mandatory from April 6 2022 for large companies,” she says.
“I’d expect to see a big increase compared with 2020 in TCFD-related disclosures in the 2022-23 reporting cycle, but by no means a peak.”
Within the same time frame, Chris Fidler, senior director of global industry standards at the CFA Institute, is expecting the International Sustainability Standards Board to issue climate-related disclosure standards. These  guidelines will create adherence within “major capital markets”, he says.
On the back of this, Fidler expects the “quality and availability of issuers’ ESG disclosures related to other ESG issues to improve as well”, although it is unlikely to result in the same extent of standardisation.
Thomas Höhne-Sparborth, head of sustainability research at Lombard Odier, says a focus on the “larger spectrum of material sustainability factors with a broader scope across a company’s full supply chain”, can be expected alongside the recognition of a company’s impact on its wider environment, as well as the possible impact of that wider environment on the company.
“We believe company disclosures will need to evolve to demonstrate a full assessment of the key dimensions material to a company,” he says.
“On environmental issues, this extends beyond an analysis of carbon footprints and other widely reported data, to a broader appreciation of dimensions such as biodiversity impact, waste footprints, water scarcity and availability, and chemical pollution, among others.”
Höhne-Sparborth adds that disclosures must “recognise two sides of the same coin” by demonstrating the company’s understanding of the impact it has on the wider environment and the company’s exposure to transitional and physical risks is a two-way street.
“As such, disclosures should focus both on the company’s wider impact, as well as its financial exposure to key risks,” he says.
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<h3>Social risks</h3>
On the social side of ESG, the trend for increasing volumes of disclosures is also apparent, particularly around workforce, human rights and community issues, Rose says.
“I’d expect to see more disclosure focusing on a company’s supply chain, or ‘value chain’.  There are growing calls from all sides for greater transparency on issues such as modern slavery, but very little meaningful disclosure on it yet,” she continues.
“It will take a big shift and there will be push-back from corporates as it’s hard to do, but they may have no choice thanks to the combined pressures of media and consumer awareness, vocal watchdogs and, of course, regulation.”
But five years is a long time for a space “still immature and so connected to both the financial dynamics and ethics of a volatile world”, Rose adds.
“The current war in Europe is a reminder to expect the unexpected to rock what ESG means to investors, trustees, corporates and other stakeholders alike.
“As investors pin down specific ESG attributes that translate to better returns or pose the greatest risk, these will no doubt be a driving force in shaping the disclosure landscape, alongside the social and environmental agendas hoping finance will bring about the change they want,” she says.
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<h3>Preparing for change</h3>
Efforts to improve ESG disclosures currently face several barriers, including the lack of a universal taxonomy and data standards, increasing workload impacting trustees, and a lack of ESG expertise, according to experts.
Rose does not believe that these challenges will be solved entirely within five years, but observes that the “market is responding” with a growing pipeline of young ESG professionals converging with improved reporting frameworks.
The scale of upheaval facing both the pensions sector and the wider world means exposure to the transition must be “carefully managed”, Hohne-Sparborth says.
He believes the market is currently “ill-adapted” to the rise of ESG and is not yet “pricing in the significant downside and upside risks our economy is exposed to.”
Yet there is a need to prepare for these changes now, and Hohne-Sparborth says trustees must begin by identifying partners that have the “capabilities, expertise and mindset to help them navigate the transition in a manner aligned to their investment priorities”.
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What does the future of ESG disclosure look like?

The &#8216;G&#8217; in ESG is widely known as governance, but what exactly is governance? And how can it be used to ensure better long-term performance in a company?
You can listen to our ESG Research Director <a title="https://www.linkedin.com/in/ACoAAAEN8ukB24Qgb2FV7o0onAJyWf9meMTRnpw" href="https://www.linkedin.com/in/ACoAAAEN8ukB24Qgb2FV7o0onAJyWf9meMTRnpw">Diana Rose</a> discuss governance on the latest <a title="https://www.linkedin.com/company/financial-times/" href="https://www.linkedin.com/company/financial-times/">Financial Times</a> Adviser Podcast <a href="https://podcasts.apple.com/gb/podcast/exploring-governance-the-g-in-esg/id1437151302?i=1000556289364">here.</a>

what-exactly-is-governance

What exactly is governance?

<h2>TCFD: Task Force on Climate-related Financial Disclosure</h2>
One could argue that this four-letter acronym is the start of the green revolution for the corporate reporting world. With TCFD reporting now mandatory from 6 April 2022 for over 1,300 large corporations with &gt;500 employees and &gt;£500m in annual turnover, the UK is the first of the G20 to make it law, with others set to follow.
One could also argue that the regulatory burden of disclosure and reporting is going to cause a huge amount of pain. Not just for the companies required to report, but every investor required to analyse the mountain of disclosure documents coming their way, in order to substantiate their investment decisions.
The TCFD was established in 2015 and finalised in 2017 to drive the reporting of climate-related financial information in publicly available Annual Reports. Widely applicable across all sectors and jurisdictions, disclosures are around 4 core pillars that demand oversight of climate risk at every level of business: governance, strategy, risk management, and metrics and targets.
There is no question that the merits of TCFD are going to change the way companies operate and report, and will certainly change the way investors evaluate the companies that they buy into. The near-term pain and overhead of the reporting requirement will also hopefully accelerate corporate awareness on their impact on climate and, over time, we all start to see and feel the benefits of a recovering environment.
With the 6th of April looming, the big question is: how many of the major FTSE companies are prepared for the disclosure task ahead of them or risk falling foul of regulation? What’s telling is to see how long a company has been talking about TCFD, and where they publish their disclosures. The point here is that TCFD requires significant lead-in time to implement and requires that climate risk is addressed in the fundamentals of the Annual Report.
<h2>What Does the Data Say?</h2>
Using the Insig.AI database of corporate ESG and financial documents, the goal was to identify trends around TCFD disclosure over time and across report types.
The approach was to use a keyword and phrase search across the entire database on: “TCFD”, “climate related”* and “climate risk”.
COMPANY, TIMEFRAME AND DOCUMENT UNIVERSE 
Companies: FTSE 100 (plus a few other UK names) 
Timeframe: 2015-2021 
No. of documents queried: 3,345 
Document Types: Annual Report, Integrated Report, Sustainability/ESG Report, Climate Change Report, Climate Change Policy, Financial Document, ESG Data
*Searching “climate related” also accurately surfaces “climate-related” which is the TCFD naming convention.
<h2>Summary Observations</h2>
<h3>Who was first to start referencing TCFD?</h3>
Aviva, Barclays, BHP and LSEG were the first FTSE companies to make reference to TCFD back in 2016, before the TCFD recommendations were even finalised.  This indicates foresight and these companies have continued to be leaders in TCFD disclosure over the past 5 years.
<img class="wp-image-2540 size-full aligncenter" src="https://insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png" alt="" width="904" height="346" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=200%2C77&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=300%2C115&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=400%2C153&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=600%2C230&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=768%2C294&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?resize=800%2C306&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_1.png?fit=904%2C346&amp;ssl=1 904w" sizes="(max-width: 904px) 100vw, 904px" />
<h3>References Over Time</h3>
FTSE companies have been actively referencing “climate related” since 2017 and the trend has continued to grow year on year. Reference to “climate risk” only started to gain traction in 2020. TCFD references have doubled year on year since 2017.
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<img class="wp-image-2541 size-full aligncenter" src="https://insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png" alt="" width="932" height="592" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=200%2C127&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=300%2C191&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=320%2C202&amp;ssl=1 320w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=400%2C254&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=600%2C381&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=768%2C488&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?resize=800%2C508&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_2.png?fit=932%2C592&amp;ssl=1 932w" sizes="(max-width: 932px) 100vw, 932px" />
<h3>Leaders and Laggards</h3>
Analysing combined TCFD relevant disclosures over this same period, there are clear and consistent leaders. At the other end of the spectrum, there is a stark difference in level of disclosure.  It raises some questions about the level of commitment and readiness for TCFD reporting come April. Whilst the ‘materiality’ of climate change risk and impact does vary between sectors, which means some industries would start with more established reporting, a principle of the TCFD is that climate change is a risk to all businesses.
 <img class="size-full wp-image-2542 aligncenter" src="https://insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png" alt="" width="928" height="574" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=200%2C124&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=300%2C186&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=400%2C247&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=600%2C371&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=768%2C475&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?resize=800%2C495&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_3.png?fit=928%2C574&amp;ssl=1 928w" sizes="(max-width: 928px) 100vw, 928px" />
<h3>Disclosure by Document Type</h3>
Taking 2020 as a snapshot of where TCFD disclosures are found across reports, Annual and Climate Change Reports make up just over a third each.  22% are found in Sustainability and ESG Reports.  Companies not yet reporting to the TCFD in their Annual Reports will be required to start in the 2022-23 reporting cycle.
<img class="aligncenter wp-image-2543" src="https://insigai.io/wp-content/uploads/2022/03/esg_tcfd_4-800x720.png" alt="" width="600" height="540" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=200%2C180&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=300%2C270&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=400%2C360&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=600%2C540&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=768%2C691&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?resize=800%2C720&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/03/esg_tcfd_4.png?fit=1011%2C910&amp;ssl=1 1011w" sizes="(max-width: 600px) 100vw, 600px" />
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tcfd-which-ftse-companies-are-ready

TCFD: Which FTSE companies are ready for the 6th of April…and which are not?

If you ask any data scientist what they spend most of their time doing, they won’t tell you that it is solving the world&#8217;s hardest problems, or fine tuning an incredible new life changing algorithm, or even predicting the next bitcoin bounce. No- what they would say is, collecting and cleaning data. Period. Once they have done this, they still have to transform it into a format that is machine readable. The reality is that these seemingly mundane tasks are 80% of their day job. In the asset management industry, there is a constant drive to find a trading edge or to find a new signal in a dataset that informs an investment decision. You only need to look at firms like Renaissance, TwoSigma and Citadel to find evidence of advanced data science driven strategies. They have invested millions of dollars into curating their own datasets and building teams to find value in their data. Anyone new to the game, however, has to start from scratch. This is why getting access to transformed, structured, labelled/tagged and machine readable data is so valuable.
<h3 class="MuiTypography-root MuiTypography-h3 css-1inx43p-MuiTypography-root">Initial success</h3>
In late 2020, we were developing a new machine learning model for an asset management client who was looking to identify the strategic direction of a company based on earnings call transcripts and annual reports. We started with the S&amp;P 500 and very quickly were able to get machine readable transcripts from Capital IQ along with companies&#8217; annual reports from the SEC Edgar database. The data was well formatted, tagged, easy to download and there was a lot of history &#8211; a data scientist’s dream! We used a combination of NLP to analyse what was being said in the text, and predictive machine learning algorithms to analyse the company financials. This approach resulted in an ecstatic client and an expanded mandate.
<h3 class="MuiTypography-root MuiTypography-h3 css-1inx43p-MuiTypography-root">The challenge</h3>
Filled with confidence (perhaps even a hint of arrogance) following our recent success, we set out to repeat the exercise on European companies. The earnings call transcripts were again, readily available and these were ingested and processed quickly. Next, we set out to add the European annual reports and filings, expecting to find the same clean dataset, beautifully structured as was held in the Edgar database. Instead, we found ourselves in a data-science nightmare. European companies do not have to report in a uniform, consumable standard, nor is there a central database to access files. They are free to do whatever they want and can publish the content anywhere, whether this be the investor page on their website, to LinkedIn. Put simply, there is no consistency of format, or filing. Given we had promised our client a quick turnaround (based on our first experience), we had a problem.
<h3 class="MuiTypography-root MuiTypography-h3 css-1inx43p-MuiTypography-root">The solution</h3>
In a scramble to find a reliable source of data that would help us avoid having to find and download thousands of PDF documents that we would have to manually clean and tag, we stumbled across an article by a small company called FDB Filings. They had apparently come across the same problem and built a business around it!
&#8211; Comprehensive coverage of European annual, interim &amp; press release reports
&#8211; PDF documents converted into a machine readable JSON format
&#8211; Link back to every original source document
&#8211; Point-in-time entity mapping
&#8211; Clear and well-defined tags on revenue guidance, executive speaker, business risks &amp; more
&#8211; 10 years of filing history
&#8211; Data accessible via an AWS S3 bucket
We set up a trial to test the data, and to our collective delight, the quality of their technology, data structuring and team was outstanding! We were able to ingest and score 10+ years of annual reports for 1,000 European companies, almost immediately and deliver back the results our client was expecting. The team at FDB had set out to solve a very hard data structuring problem and succeeded so much so that In November 2021 Insig AI acquired FDB.
<h3 class="MuiTypography-root MuiTypography-h3 css-1inx43p-MuiTypography-root">What we learned</h3>
Starting from scratch doesn’t necessarily require billions. This process demonstrates that a combination of thoughtful data structuring, good timing, and robust infrastructure, is fertile ground to create an AI-powered analytical platform, that delivers unbiased, uniform, value-add insights to an entire sector, across different markets, in an accessible, and easily digestible format. Financial Institutions are entering an entirely new paradigm, one where stakeholders and shareholders alike are squarely focused on sustainability and accountability. This is bringing a significant layer of complexity and cost to a financial institution. Technology and data companies are emerging with cost effective and transparent data scientific propositions that enhance the due diligence and risk management capabilities of an institution, while informing and improving investment decisions. For the heads of risk and sustainability at financial institutions, the choice of data provider is yours, but the time for acting, is now!

european-machine-readable-company-filings-a-data-scientist's-dream

European machine readable company filings: a data scientist's dream

As quoted in <a href="https://www.pensions-expert.com/ESG/Is-now-the-time-for-schemes-to-consider-natural-capital?ct=true" target="_blank" rel="noopener">Pensions Expert &#8211; Link</a>
<h2 class="p1">2022 is shaping up to be the year when natural capital joins the mainstream agenda in ESG.</h2>
Following the stickiness of the Taskforce for Climate-related Financial Disclosures (TCFD), the first draft of the equivalent Nature-related framework (TNFD) is due to be released this quarter.  It will contain recommendations on how to manage, report and act on nature-related risks in practice, and calls for organisations to integrate these into their governance, strategy, targets and performance metrics.
Other highly influential ESG frameworks are adding to this momentum; the Climate Disclosures Standards Board (CDSB) has released biodiversity guidance, the Global Reporting Initiative (GRI) will release an updated Biodiversity Standard, and the CDP has announced it will expand its questionnaire from climate, forests and water to include oceans, land use, biodiversity, food production and waste.  The Science Based Targets Network is bringing out guidance on targets for nature, and the EU is due to draft a biodiversity disclosure standard as part of the development of the European Sustainability Reporting Standards.
This acceleration is in response not only to the growing international agenda around natural capital, as witnessed at COP26, but to the market calling for better risk management and disclosure frameworks to support finance and business to assess and manage this area of risk and opportunity.
<h2 class="p1">What does this all mean for investors and trustees with ESG goals, balancing risk and returns?</h2>
There will be growing expectations for nature-related considerations to be integrated into ESG investment, in the same way there has been for climate over the past few years.
However, to make evidence-based decisions, investment-useful information needs to be available.  Currently, there is very little being disclosed on natural capital compared to climate; companies are barely off the ground and it will take time that environmentalists argue we don’t have to spare.
<img class="alignnone wp-image-2569 size-full" src="https://insigai.io/wp-content/uploads/2022/04/natural-capital-1.png" alt="" width="1636" height="914" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=200%2C112&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=300%2C168&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=400%2C223&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=600%2C335&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=768%2C429&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=800%2C447&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=1024%2C572&amp;ssl=1 1024w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=1200%2C670&amp;ssl=1 1200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?resize=1536%2C858&amp;ssl=1 1536w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-1.png?fit=1636%2C914&amp;ssl=1 1636w" sizes="(max-width: 1636px) 100vw, 1636px" />
<blockquote>
Considering the trajectory of climate-related disclosures over the past 7 years, we could reasonably expect nature-related disclosures to follow suit.
</blockquote>
Businesses will start to feel the pressure to disclose information in line with the leading frameworks – the issue will become more material to more industries.  Awareness around the topic will also start to grow in the media and among the pension-holding public, alongside tightening regulation and the trend for greater engagement and influence between investors and what their money is doing.
<h2 class="p1">Nature-positive outcomes and opportunities</h2>
The timing of the natural capital agenda and the momentum behind ESG investment means that it’s not going away, which is good news for the planet and its inhabitants, but presents fresh challenges for robust ESG assessment on the dependencies and impacts on nature to ensure money is flowing in ways that will contribute to ‘nature positive outcomes’.
There are various initiatives to quantify natural capital, and these should gain some traction in being integrated into financial decisions, such as the Natural Capital Protocol and Value Balancing Alliance.  But it can’t be ignored that something like soil mineral quality is hard to quantify in the same as C02, and its value is interconnected with other ESG factors such as climate change and society.  Many biodiversity risks are also hidden in the international supply chain, where regulation is harder to track and oversight tends to be weaker.
For trustees and investors, there’ll be the mandate both to demand greater evidence and transparency from their portfolios (and critically, their supply chains), and a chance to take a strategic and long-term view on opportunities around natural capital such as nature-based solutions and climate change adaptation.  The emergence and convergence of the reporting frameworks will support this, and will help investors to know what to look for among disclosures as they grow, and to ask the most pressing questions of their portfolio companies.
<h2>Appendix: Additional Chart Options</h2>
Comparing frequency of reference to Climate and Nature related disclosure (FTSE 100 2015 &#8211; 2021)
<img class="alignnone wp-image-2570 size-full" src="https://insigai.io/wp-content/uploads/2022/04/natural-capital-2.png" alt="" width="1708" height="1084" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=200%2C127&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=300%2C190&amp;ssl=1 300w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=320%2C202&amp;ssl=1 320w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=400%2C254&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=600%2C381&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=768%2C487&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=800%2C508&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=1024%2C650&amp;ssl=1 1024w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=1200%2C762&amp;ssl=1 1200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?resize=1536%2C975&amp;ssl=1 1536w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-2.png?fit=1708%2C1084&amp;ssl=1 1708w" sizes="(max-width: 1708px) 100vw, 1708px" />
Leaders and laggards in frequency of reference to Climate and Nature related disclosure (FTSE 100 2015 &#8211; 2021)
<img class="alignnone wp-image-2571 size-full" src="https://insigai.io/wp-content/uploads/2022/04/natural-capital-3.png" alt="" width="1248" height="1352" srcset="https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=200%2C217&amp;ssl=1 200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=277%2C300&amp;ssl=1 277w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=400%2C433&amp;ssl=1 400w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=600%2C650&amp;ssl=1 600w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=768%2C832&amp;ssl=1 768w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=800%2C867&amp;ssl=1 800w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=945%2C1024&amp;ssl=1 945w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?resize=1200%2C1300&amp;ssl=1 1200w, https://i0.wp.com/insigai.io/wp-content/uploads/2022/04/natural-capital-3.png?fit=1248%2C1352&amp;ssl=1 1248w" sizes="(max-width: 1248px) 100vw, 1248px" />

is-now-the-time-for-schemes-to-consider-natural-capital

Is now the time for schemes to consider natural capital?

women-in-finance-experts-reflect-on-their-experiences

Women in finance - experts reflect on their experiences

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Technology: For explainable AI, look in the white box

what-is-so-hard-about-pdf-text-extraction

What is so hard about PDF text extraction

The disclosure reach tool enables our clients to rapidly discover actionable insights concerning companies' ESG disclosures. 

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We give clients the ability to interrogate disclosures at the sentence level ensuring scores are both auditable and transparent.

Auditable and transparent

Our methodologies are fully documented, publicly disclosed and transparent, providing reassurance to clients and their stakeholders on the integrity of the evidence-based decisions. The ability to drill down to sentence level and full transparency to source documents brings rigour to the due diligence of ESG decisions.

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Attract new capital by instantly extracting actionable insights from the ever-growing mountain of ESG data.

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Company news and views on the market

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TCFD: Which FTSE companies are ready for the 6th of April…and which are not?

European machine readable company filings: a data scientist's dream

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