Panel: Understanding compliance should take priority over amassing net zero data

Firms should stop spending “unnecessary” money on ESG data until their businesses fully understand what the reporting requirements are, according to a regulatory insider.

Irina Velkova, associate director within the regulatory advisory practice at Grant Thornton, commended efforts by the UK’s finance watchdog, the Financial Conduct Authority, to give oversight to the ESG data provider space and the “sea of providers” within it, through proposed regulation such as a Code of Conduct and development of high quality benchmarks.

“I've seen so many firms that have dived into buying different data sets just so that they have something, without it being clear at all what they need this data for," Velkova said during a webinar.

“I've tried to stop them and tell them just please do not buy any data tools because this is really not going to help you unless you are clear on what your requirements are and what you have to report against”, she told delegates during the webinar ‘Women in Compliance: Key considerations for a thriving ESG compliance strategy’, hosted by software firm Clausematch.

Commitments

When asked by Net Zero Investor during the same webinar how important it is for firms to make clear net zero commitments, Lisa Beth Lentini Walker, assistant general counsel at financial services firm Marqeta, argued that it was still a sector-specific consideration.

However, Lentini Walker did point out the increasing importance of requirements around public funding, giving the example of a recent decision by the UK’s National Health Service (NHS). 

From this April onwards, the NHS demands suppliers of new contracts above £5 million per year to publish a carbon reduction plan for their greenhouse gas emissions.

“[Net zero] varies by industry, it varies by location. Whether a firm needs to do it, or ought to do it, is a different question," Lentini Walker noted.

“However, if you say that you are going to do something in terms of reputational risk you need to be committing fully, otherwise you run the risk of greenwashing”, she said.

‘Tick box exercises’

Discussed during the same panel was the relative importance of ESG compliance not being reduced to a “tick box” exercise but instead showing clear signs of the company engagement with the issues at hand.

Sarah Sinclair, founder of financial services consultancy Change Gap, said: “The worst thing you can do is do ESG as a tick box."

She explained that “so many financial institutions spend so much money year after year trying to sort out their data or their reporting or their other processes to comply with the regulation because it hasn't been done properly before because of this approach. Moving past compliance as a tick box exercise is a golden opportunity try and do it properly.”

Sinclair also described the situation as a “last chance saloon”, with compliance efforts needing to be adhered to in light of increased pressures such as a rapidly warming planet.

Pushing back, Walker said: “I would rather have at least a tick box where someone is looking at this, then to have complete ignorance, but that is not optimal.

“However, what we know about human behaviour is that if there is a rule that you are trying to meet, and people are not embracing that requirement, because they're being told what they need to do, there will typically be behaviours which get you to the point that you have met the mark and you will go no further.”

Also speaking at the panel was Kena Pitts, chief compliance officer at advisory firm ARB Interactive, plus Carol Lemos and Eugenie Casier of Clausematch.

More than half of all businesses have not started collecting data to comply with the new EU’s Sustainable Financing Disclosure Regulation, according to new research published last month.