Many folks have known for years that ESG data is generally not verified or subject to the same internal controls as financial information (especially for U.S. companies). I’ve written about it here on PracticalESG.com and even years before. There are risks with data being pushed into the public sphere that isn’t subject to monitoring and controls procedures. Much of the focus has been on the compliance and litigation risks of including inaccurate data in public-facing disclosures or in representations to business partners. Now that the general public is becoming more interested in sustainability, inaccurate information can also create sales and revenue risks – particularly due to advances in artificial intelligence (AI).
The convergence of AI and ESG may already be on your radar because investors and ESG ratings organizations are increasingly using AI algorithms to locate, gather and process ESG data. Something that caught my eye this week is a browser extension that works with Amazon and gives a sustainability ranking (1-10) for everyday consumer products. Finch was recently launched as a way to “help consumers do less upfront work and help drive brands to be more sustainable” according to founder Lizzie Horvitz. Their Ratings System Cheat Sheet admits the approach and methodologies (which are currently limited to environmental issues and I won’t go into detail here about my other concerns) are being refined, but the point is that Finch:
- works on the world’s largest online retail platform
- using ESG data made publicly available somewhere without undergoing verification and internal controls
- to provide instantaneous ESG ratings directly to consumers.
Finch may not be the only one doing this – and that should heighten corporate concern about the validity and accuracy of non-regulatory and non-financial ESG data they publish.
What You Can Do
I’ve said this many times before and it bears repeating – ESG data should be subjected to the same internal monitoring, verification and controls as financial data that is reported externally.
- Involve your internal audit group would be an easy place to start.
- When hiring external experts, make sure they are adequately qualified in the subject matter(s) so the can adequately assess the context and quality of the information they would be reviewing.
- When using industry ESG audit or certification programs, consider actively engaging in those programs as I discussed previously.