The report "Quality Matters: Transforming ESG Data for Better Decision Making” by We Mean Business Coalition (WMBC) addresses significant challenges in ensuring the quality, consistency and availability of ESG data (environmental, social and management factors), which are increasingly important for business strategy and decision-making. The report aims to stimulate constructive dialogue with key stakeholders to improve systemic issues, rather than focusing on specific cases of incorrect data.

The report identifies key issues arising from three main sources: companies, data providers and structural factors.

Between problems arising from data reporting by companies include:

• Lack of ESG reporting, leading to biased data sets as they mainly report large, publicly listed companies in developed countries.
• Lack of reporting on specific key performance indicators (KPIs), which causes gaps in important data and makes cross-company analysis difficult.
• Inconsistent methods for calculating ESG metrics between companies and over time, which complicates comparisons and time series analyses.
• Misunderstanding of reporting requirements, leading to inaccuracies, such as reporting only CO₂ emissions instead of CO₂e equivalents or not including all seven Kyoto gases.
• Presenting data in awkward formats, such as colorful illustrations or text that make it difficult to extract and use data effectively.

Between problems arising from data providers include:

• Delayed data provision, with ESG data often out of date by 1.5 years or more.
• Data extraction methods leading to errors, such as typos and missing data due to manual extraction, surveys or machine reading.
• Lack of quality control and updating of historical data, which causes older data to be erroneous and uncorrected, making time series analyses difficult.
• Lack of detail in the data, such as not distinguishing between market and location-based Scope 2 emissions or not providing taxonomy data down to activity numbers.

Between structural problems include:

• Lack of a central repository for ESG data, making it difficult for stakeholders to access information without significant costs.
• Lack of verification by national authoritiesbecause authorities have not yet started to review ESG reports for obvious violations.
• Misalignment of greenhouse gas (GHG) emissions reporting boundaries and financial reporting, which complicates integrated analyses with financial data.

The report proposes solutions for companies, data providers and system change makers:

• Companies should identify necessary KPIs, implement internal controls, and adopt useful reporting formats.
• Data providers/investment platforms should conduct quality checks, identify the required level of detail and ensure the accessibility of ESG data to retail investors.
• Data users should ask critical questions when the data doesn't fit.
• Systematic changes should include mandatory ESG reporting, XBRL validation and labeling; establishing multiple XBRL repositories; improving education; and aligning the boundaries of financial and ESG data.

The WMBC report highlights that ESG data quality is essential for informed decision-making and sustainable business practices. The report provides practical advice for identifying and addressing data quality issues and encourages stakeholders to actively engage in improving data collection and verification processes. The aim is to foster an ESG data culture that supports informed and effective decision-making. The report concludes with a call for collaboration between regulators, data providers, companies and stakeholders to ensure that ESG data fulfils its potential as a cornerstone for analyzing company performance and prospects. Spring

Glossary of key terms

• ESG (Environmental, Social, Governance): An acronym for environmental, social and governance factors that are used to evaluate a company and its impact on the world.
• KPI (Key Performance Indicator): Key performance indicator; measurable values that show progress in achieving goals.
• GHG (Greenhouse Gas): Greenhouse gas; gases in the atmosphere that trap heat and contribute to global warming.
• Scope 1, 2, 3 Emissions: Scope 1: Direct GHG emissions from the company (e.g. from own fuel combustion).
• Scope 2: Indirect GHG emissions associated with the purchase of electricity, heat, or steam.
• Scope 3: All other indirect GHG emissions that occur in the company's value chain.
• XBRL (eXtensible Business Reporting Language): A language for digital reporting of business and financial information.
• ISSB (International Sustainability Standards Board): The International Sustainability Standards Board, which develops global standards for sustainability reporting.
• CSRD (Corporate Sustainability Reporting Directive): European Union Directive on Sustainability Reporting.
• ESAP (European Single Access Point): European Single Access Point; EU platform for easy access to financial and sustainability information on companies.
• NZDPU (Net-Zero Data Public Utility): A platform for publicly available data related to net-zero emissions targets.
• Raw Data: Raw data; data that is directly reported by companies and has not been artificially calculated.
• Calculated Data: Calculated data; data that is artificially calculated based on data from similar companies.
• ESG Ratings/Rankings: Ratings and rankings; an aggregated score or ranking that is based on various elements of ESG data.
• Materiality: The concept of determining information that is relevant enough to influence users' decisions.