My mom reads my blogs (hi Mom) and sends me information on ESG and sustainability. Earlier this week she sent me the 2020 ESG report from one of her stock holdings – a mid-cap US energy company. The report was well done, if perhaps a little long, and claimed to have followed several ESG reporting frameworks including a few specific to their industry. Perhaps most impressive was the section on their social impact where they explored a wide spectrum of meaningful social risks and benefits related to employees, communities, supply chain diversity and the tax/economic development impact they created for states in which they operate. The report had not been audited or assured by third party, however.
And then it happened. The reported value of one environmental indicator jolted me. If this number was correct, the company would be a global leader in this important topic, a reduction in a particular impact for the year 2020.
In digging further, I determined that the reported number is not actual reductions. Instead, the baseline was determined using industry estimates (an overestimation and generic). That was then compared to actual measured data specific to the operation. Now, in some circumstances comparing actual data/measurements to estimates is fine. But in this case, the approach appears intentional and misleading. I could be wrong, but there are a few red flags that support my perception:
- this indicator is mentioned only once in the company’s 50+ page report
- it is discussed only in a single paragraph
- there is no accompanying graphic to highlight what should be an incredible success story (graphics are used for many other ESG indicators)
- as they state in this report, the company began using the reduction technology in the 1960s, indicating that the generic industry estimates (which do not reflect this technology) don’t seem relevant to the 2019 baseline year
What This Means for You
Companies understandably want to put their best face forward in ESG reports. A certain amount of interpretation of reported data and information should be expected, even in a future state where a mandated disclosure framework exists. But there is a huge difference between that and publishing misleading or false information.
Always conduct a thorough critical review of your ESG report content and data supporting metrics/indicators. Some considerations in your review include:
- do the numbers or statements simply make sense?
- big numbers and bold statements (good or bad) attract attention and scrutiny. Make sure the data, methodologies and assumptions behind those have been reviewed, vetted and are thoroughly explained in the report.
- burying good news rather than emphasizing it causes readers to question its validity.
- in today’s world, ESG reports are read by many people and even by artificial intelligence. It is a mistake to think that your ESG report will be generally ignored. Misleading or false information creates legal and business risks. Just don’t do it.