FoSDA: towards consistent, comprehensive and coherent data

During the last year the FoSDA Taxonomy working group produced a well-received infographic and analysis detailing the taxonomy development around the world and now plans to create a Taxonomy repository, which will be an open-source database to capture critical features of sustainable finance taxonomies and keep track of taxonomy development worldwide. The repository will provide a tool for navigating taxonomy regulations and identifying their similarities and differences.

As the first step, the repository will capture basic information of taxonomies such as country/region, date, source document and use cases. At a later stage, it may map economic activities covered by taxonomies and metrics on measuring environmental impacts used by technical screening criteria of taxonomies, if any, to investigate similarities and discrepancies among taxonomies, and connect with existing disclosure frameworks and sustainability reporting standards.

Another focus of the taxonomy group next year will be the environmental impact of buildings and identification of common standards and performance across regions.

The Workstream Co-Leads:
Sean Kidney, Co-founder and CEO, Climate Bonds Initiative
Jaakko Kooroshy, Head of Data & Methodologies, Sustainable Investing, FTSE Russel

On the 28th October 2021, FoSDA presented its ESG data gaps and holes report with policy recommendations examining the global ESG data space.

With the rising importance of sustainable investing and ESG disclosure requirements for financial market participants, the FoSDA ESG Data Council started its operations in May 2021 and published its initial findings ahead of COP26, having been driven by three main objectives:

1) Map the gaps and holes in availability of raw ESG data required by financial market participants to feed the rising importance of sustainable investing as well as to comply with regulatory ESG disclosure requirements emerging across multiple jurisdictions;
2) Identify rationales for these gaps and holes;
3) Share best practices and proposed approach to fill these gaps and holes.

While the report acknowledged the continuous improvement of ESG disclosure and availability, it also found that some critical ESG data points are missing. There are significant gaps and holes in market data and the population of corporate disclosure in reporting frameworks is often inadequate. The review included data that contributed to all components of ESG: environmental, social and governance.

Key findings:

Regarding data gaps, the most critical missing data points included:

• Energy consumption and production by source
• Emissions of GHG and ozone depleting substances
• Executive pay and board composition
• Employee health, safety, wellbeing and benefits

Regarding emerging topics that society is attempting to tackle and for which members of the Data Council are keen to improve data accessibility, key elements flagged as Data Holes include:

• Biodiversity and nature
• Supply chain reporting

Beyond these key Data Gaps and Holes, Data Council members also identified challenges related to clear cut methodologies and approaches for calculating forward-looking metrics, for example GHG emission targets.

Furthermore, the Data Council members also analysed the rationale for the higher presence of data Gaps vs. Holes – partially caused by the difficulty in identifying Data Holes due to their low maturity. The Data Council also looked at the rationales for domain discrepancies in terms of ESG data availability and trends identified which aim at bridging the identified gaps.

The Workstream Lead:
Ludovic d’Otreppe de Bouvette, Senior Vice President, ESG Analytics, Moody’s ESG Solution

One of the most commonly cited barriers to action across players in the financial ecosystem relates to issues around data, particularly as the long-term nature and uncertainty associated with climate-related analysis can render historical data difficult to use as inputs for estimating future pathways.

In response to this, FoSDA set up the workstream on forward-looking data, to contribute to the efforts to improve definitions and access to forward looking data for financial services. Ahead of COP26 in Glasgow, we published a report, together with the Official Monetary and Financial Institutions Forum (OMFIF), on quantifying the path forward for sustainable data.

The report set out to answer questions around the definitions of forward-looking data and the contribution they can make to exercises such as dynamic risk assessments and scenario analysis. Through engagement with private financial institutions as well as private finance, we identified the following priority areas for this agenda:

• Standardisation of net zero targets and commitments to enable assessments and comparisons across portfolios.
• Recognition of differences in sectors and types of institutions when assessing net zero alignment transition plans.

The Workstream Co-Leads:
Sherry Madera, Chair, Future of Sustainable Data Alliance (FoSDA)
Danae Kyriakopoulou, Senior Policy Fellow, the London School of Economics and Political Science (LSE)

The Talent Development and Capacity Building workstream is directly building on one of FoSDA’s initial recommendations from 2021, acknowledging the need for new skillsets in the workforce, at a scale and pace that matches the urgency of the planetary crises we are facing. The workstream has been established to answer two fundamental questions:

• What are the novel skills needed to support ESG data analysis for sustainable finance
• How is this capability being developed today?

The ultimate goal is to build a network of educational institutions, professional bodies, industry and policymakers with a shared interest in developing talent to meet ESG/Sustainable Finance data requirements.

At the core of this work sits the Sustainable Finance Data Skills and Capacity Building Directory which is being launched in the spring of 2022. This Directory provides an overview of some of the ESG data skills needed for sustainable finance professionals, as well as capacity building providers from around the world. The tool is built on the World Economic Forum’s platform and contains relevant materials that are both manually and automatically curated. It is a live directory that allows new capacity building providers to be listed as they enter the market.

Ultimately the directory serves as a first port of call for financial industry professionals, looking to develop the skillsets needed to support a green and just economic transition.

The Workstream Co-Leads:

Haleh Nazeri, Platform Curator, Shaping the Future of Financial and Monetary Systems, World Economic Forum
Matthew Blake, Head of Financial and Monetary System Initiatives, World Economic Forum
Matthew Chan, Regional Sustainability Practitioner (APAC), International Banking Sector
Christophe Christiaen, Innovation and Impact Lead, University of Oxford, Oxford Sustainable Finance Group