By Diana Rose, Head of ESG - June 27th 2024
With this year’s exponential advancements in open-source AI, regulators and investors are now armed with tools for benchmarking and scrutiny that means companies can no longer fly below the radar on transparency, disclosure, accountability and greenwashing.
Sustainability reporting has been around for over a decade and is finally being regulated; are large companies ready?
If not, why not, and what risk does that pose to them and their investors?
Announcing the TDI Global
Insig AI has released the Global version of its Transparency and Disclosure Index (TDI). Covering over 2,300 of the world’s largest listed companies, it takes stock of which documents companies are publishing and benchmarks their levels of governance and sustainability disclosure.
Agnostic to ‘green’ vs ‘dirty’ sectors, companies are recognised for making certain information available for accountability and trust and showing readiness for emerging regulation.
The platform uses dynamic statistical benchmarking against the global universe and sector peers. The index is live and responsive; as soon as a company is added, the ranking updates.
2,300 companies are ranked dynamically against the global universe and their sector benchmark:
The TDI’s transparent scoring highlights strengths and gaps in reporting, with granular and actionable insights. It signposts to best practice examples and links directly to the evidence-base of Insig AI’s database of c200,000 machine-readable corporate reports.
This benchmarking ability, extensive database and machine-learning and AI-assisted research tools make the TDI Global a powerful and highly flexible asset for consultants and analysts.
Large, listed…lagging?
Scored out of 100, a TDI result above 70 indicates a company is close to meeting stakeholders’ corporate reporting expectations. Anything below 50 is evidence of significant and multiple gaps in disclosure, lagging against expectations driven by reporting standards and the benchmark.
Distribution of TDI results for the world’s largest companies, with 59% failing to meet expectations and 21% lagging significantly:
The results reveal that 59% of mega and large-cap companies fall below the 70 mark and 21% are lagging significantly. These are companies with over $200 billion and $10 billion market cap respectively.
This raises key questions
1 – Fundamentally, these are the world’s richest, most investable and regulated companies: Where is their information?
2 – Sustainability aside, expectations on governance, risk and accountability are not about to go away: How can we make well-informed decisions?
3 – More stringent regulation is emerging to level the playing field: Does the data explain the push-back?
4 – Environment, Social and Governance (ESG) ratings agencies have been filling a gap, but when companies publish so little: What are these ratings based on?
Back to basics
The TDI is scored on six criteria, one of which is whether certain key documents have been published on the website. These include reports, policies or statements on pay gap/diversity, modern slavery/human rights and business ethics/conduct.
The TDI’s stocktake shows that more than one in five of the overall TDI universe have failed to publish a single one of these documents within the last three years.
Breakdown of overall TDI Global results by 6 scoring components. 22% of companies have failed to publish key documents on pay gap/diversity, human rights and business ethics/ conduct within the last three years:
Good news despite the weather
Trends in the data reveal clear regional patterns.
The EU and UK are on different tracks for implementing reporting requirements for companies and funds. The EU has taken the lead first with SFDR and CSRD for investors and companies respectively, while the UK has just released SDR and is expected to align with ISSB*.
There is a race on to be leaders in sustainable investment while also cracking down on greenwashing. The TDI will be a strong indicator of who’s winning this race over the next couple of years.
Score distribution by % of mega and large-cap listed companies in four regions (T1=lowest 3rd of scores, T3=highest 3rd of scores):
Meanwhile in the US, in March the Securities and Exchange Commission (SEC) adopted its final rules to require large companies to disclose certain climate-related information in annual reports. Coming into effect next year and more prescriptive than Taskforce for Climate-Related Financial Disclosure (TCFD), the US will have some catching up to do.
Nowhere to hide
2024 marks a global transition, from leaders and laggards getting lost amid the noise, to companies being held accountable on transparency and disclosure. With the advancements in benchmarking and scrutiny, regulators and investors are adding new powers to their radar that mean companies can no longer fly below it.
The TDI Global is designed to identify gaps between what’s expected and what’s being done now, and to help direct companies to close these gaps one by one. Not to tick boxes, but as a constructive feedback signal to make fundamental information accessible to meet expectations.
As we move beyond ‘ESG’ as we’ve known it, this is the time to be closing these gaps and walking the talk. The principles of transparency, accountability, clarity and communication are more important than ever to build trust in sustainable investment.
* Sustainable Finance Disclosure Regulation (SFDR); Corporate Sustainability Reporting Directive (CSRD); Sustainability Disclosure Requirements (SDR); International Sustainability Standards Board (ISSB).
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