Welcome to the first video of the module on ESG data, within which there are six videos. In this first welcome video, I'll briefly introduce the content in the next five videos and then use some data to highlight the importance of ESG data, and some of the gaps between aspirations or demands on that data, and the perceptions of whether it's fit for purpose. Next, we'll survey the wide array of third-party data providers and the different approaches that they use which links back to the different motivations for ESG investor over time. In the third video, we`re looking at a new wave of voluntary corporate reporting using a new approach to monetize ESG impacts, and integrate them into financial analysis. Next we extend this approach to the population of firms, drawing on a recent project I engaged in with the asset manager engine number 1. We first developed the logic of the framework, and then apply it, and address gaps in implementation. The sixth video, highlights the elements of best practice in ESG data present, and emphasizes the ongoing need for continual improvement to stay ahead of competitors and will likely be a rapidly evolving field. To motivate, why we're going to spend an entire class on ESG data, I'd like to share some data highlighting the rapidly growing interest in, and acceptance of the materiality of ESG factors. At the same time there's a rapid erosion in the confidence in the data we have to assess that materiality, and its strategic or investment implications. After a decade of slow but steady growth in the use of the term ESG from its inception in 2006, interest started really taking off around 2016, and has accelerated dramatically over the last couple of years. The number of S&P 500 firms, who fielded questions related to environmental, social, or governance factors in their last quarterly earnings call, doubled relative to a year ago and again as compared to the year prior to that. Furthermore, the scope of ESG issues represented in these calls is also rising dramatically as shown in this figure. According to McKinsey, external engagement now ranks as a top or top three priority for more than a half of CEOs, and boards are also paying more attention to these issues than they have in past years. The percentage of board members reporting that sustainability is important to understanding a company's business, and helping them make informed investment , voting decisions, rose from 24 percent to 54 percent in recent years a PwC survey of investment managers, found that the percentage perceiving environmental, social, and governance risks to be material, increased from 40 percent to 84 percent. A recently published Forbes survey of C-suite executives rank sustainability as the number 1 factor impacting business strategy. In the last survey they conducted, it barely even registered as material risks. But the same boards' C-level executives and institutional investors who doubled their interest and belief in the materiality, are nervous and frustrated in the gaps in their understanding, their ability to value, their ability to manage these risks as well as opportunities. They've heard the challenge posed by Larry Fink in his annual letter to CEOs, but they don't have the answers. BDO reports, that 64 percent of board members don't believe that their company's disclosures on ESG factors actually help investors to make informed decisions. EY reports, that the percentage of investment managers satisfied with the data provided to them on ESG risks, fell from 22 percent to 12 percent. The UN Principles for Responsible Investing Reports that less than 10 percent of investment managers believe companies are sufficiently explaining their strategy, and quantifying the business value of sustainability risks and opportunities. McKinsey reports that only one in five executives feel very effective at setting a framework for how their companies manage stakeholder relationships, and balancing stakeholder interests in their decision-making, or interacting regularly with the most important stakeholders. Finally, an accounting study reveals that in 90 percent of the cases, where a material environmental disclosure showed up in the audited financial reports of a company, it was omitted from the voluntarily constructed sustainability reports that are the basis for many of the ESG ratings provided by third party data vendors. On the one hand, executives, boards and investors, believe the argument that ESG is about economics not about ideology. They see it as a strategic imperative to address ESG issues that affects the material performance of the company. On the other hand, their confidence in the ESG data that they have to make strategic choices and investment decisions is plummeting. This gap, this structural gap, highlights important weaknesses of ESG data available to investors and corporates despite decades of efforts to develop and improve it
