ESG data can keep businesses accountable, but only if it can be trusted

Addressing the climate crisis requires everyone to work together, but how can we do this when the default response to sustainability efforts is scepticism and mistrust?

Already, the public feels betrayed by failed recycling programmes, duped by products that are not as eco-friendly as promised and frustrated at corporate sustainability targets that are hard to benchmark or substantiate.

In a recent global survey, 82% of respondents said they want business leaders to do more on climate change. Yet, a global study of more than 1,000 executives found that 76% do not trust the data of their competitors’ sustainability reports. Worse, only 47% report a willingness to share their environmental, social and corporate governance (ESG) data with third parties. A backlash from investors is also brewing: one survey found that nearly three out of four institutional investors do not trust companies to achieve their stated ESG commitments.

Businesses, advocates and governments often focus on the practicalities of reducing carbon emissions. But it’s increasingly clear that developing trust is just as important.

Consumers are willing to vote with their wallets when it comes to ESG. Businesses have an interest in keeping their customers happy. But ESG information is asymmetrical. How are consumers to know if the claims businesses are making are true, exaggerated or even completely fabricated?

It is, above all, governments who can help to create a neutral middle ground where customers can trust ESG claims made by businesses. ESG regulations are becoming tighter: both the Singapore government and the US Securities and Exchange Commission enacted laws in 2022 aimed at making greenwashing more difficult.

But mainstreaming ESG reporting requires more than a blunt instrument, such as penalties, which usually apply only to listed companies. Business owners at all levels must also see ESG reporting as a means of staying competitive.

“If good financial data adds value to a company, ESG data should do the same,” says supply chain veteran and startup founder Tony Wines, of ESG transformation company Turnkey. Turnkey helps businesses assess their ESG priorities, implement data capture and targets and work towards certifications that open doors to green financing opportunities.

Governments can carefully tilt the cost-benefit balance of ESG reporting by charting long-term industry transformation roadmaps, endorsing targets, such as the International Maritime Organization’s goal to halve the emissions of international shipping by 2050, and giving priority to companies who meet these standards when it comes to infrastructure and government projects.

There is even potential for national efforts to reverberate beyond local shores. Singapore, as a key business hub in Southeast Asia, can pave the way for maritime and logistics reporting to scale regionally, if other governments choose to follow its lead.

Enforcement and incentive structures don’t really mean much without the ability to establish an adequate paper trail.

Governments can help here too, by helping to create an ecosystem where data companies that focus on ESG can thrive. Singapore’s Infocomm Media Development Authority's (IMDA) Accreditation Programme works with several, including Turnkey, STACS and Handshakes, each of which addresses specific ESG monitoring concerns.

Handshakes works to ensure this exists for companies that are seeking to list. It was launched in 2012 by former Singapore Exchange (SGX) regulators Daryl Neo and Charles Poon, who wanted to expedite IPO approval by making background checks simpler.

Handshakes licences public data from corporate registries and transforms “flat data to 3D,” says Neo. It does this by harmonising thousands of company filings into traceable single-person profiles. While business owners whose companies are caught greenwashing can start new entities to obscure their track record, a quick search of a person’s profile will generate their entire business history, including compliance breaches, investigations, lawsuits or other events worth deeper inspection.

It’s not just a matter of enforcement. A more transparent ESG ecosystem is a win-win because it makes it easier for small businesses to prove their credentials and secure green financing opportunities. If banks have greater visibility of the environmental practices of potential debtors, they can not only make better loans, they can also develop more rigorous standards for their own financial products.

“These are multi-decade transition pathways, so it’s not a binary between being green or not green: it’s shading towards green,” says Benjamin Soh, fintech entrepreneur and founder of STACS. STACS’s ESGpedia aggregates data from SMEs and third-party suppliers to provide visibility for green finance and to enable supply chain and portfolio tracking for customers and investors.

Soh founded STACS and developed ESGpedia in partnership with the Monetary Authority of Singapore. It focuses on Asia-Pacific and is highly interconnected, with a further focus on SMEs and third parties whose activity is less visible than that of listed companies. Hotel chain Citadines used its ESGpedia-logged records to land a financing facility from HSBC Indonesia for its decarbonisation efforts.

Over the next decade, reducing the world’s carbon footprint will depend on stakeholders big and small, across public and private spheres working together and developing a culture of trust and accountability.

Through it all, reliable ESG data will be vital in painting a picture of how and where industries are succeeding – or failing – in the battle against climate change and developing the trust that both customers and financial institutions need to be sure businesses are meeting their obligations.