Laure Timmerman (Refinitiv): The corporate value of sustainability reporting

Using Refinitiv ESG data, Laure Timmerman, Proposition Specialist, BeNeLux, Refinitiv, considers how value can be derived from transparent, accurate and comparable sustainability reporting across the world. And more specifically, within Luxembourg.

How would you describe Luxembourg’s outlook on sustainable finance?

We’ve seen how the availability of environmental, social and governance (ESG) data has increased significantly over the past few years, alongside the growing appreciation of adopting best practice sustainability reporting as a key business differentiator. Luxembourg’s financial network have continually driven towards sustainable finance goals, take the introduction of the Luxembourg Green Exchange (LGX) in 2016 (a world first) as an example. From a macro-outlook, Luxembourg 2030 is the national plan on sustainable development. The 2030 goal is supported by the Luxembourg Sustainable Finance Roadmap, commissioned by the Luxembourg Ministry of Finance and the Ministry of Sustainable Development and Infrastructure. The partnership between strong governmental policy and Luxembourg’s position as one of the world’s wealthiest countries contributes to growing importance of sustainability in finance locally. In FY 2019, 30% of financial corporations within Luxembourg retrieved an ESG score, up 2 percentage points from FY 2017. Comparatively, considering the Benelux union, this figure stood at 38% in the Netherlands and 21% in Belgium.

"With 54% of companies reporting on sustainability - a 7% percentage rise over the last three years -, we can see a solid trend developing."

What is the corporate value of sustainability reporting?

It has been said that you can only manage what you measure, and the assertion appears to hold true when it comes to sustainability reporting. By aligning corporate purpose with profit, organizations are more likely to achieve financial outperformance than those that fail to see the value of sustainability reporting. More to the purpose, there is an increased chance of setting or meeting emissions reduction targets and managing ESG performance and risk significantly better. Considering that ESG related risks are wiping billions off companies’ valuations, Refinitiv believes a $4 trillion Carbon Correction to the markets could wipe off more still, leveraging the important role of sustainability reporting. With 54% of companies reporting on sustainability (a 7% percentage rise over the last three years), we can see a solid trend developing. This trend is mirrored in Luxembourg, with 72% of companies (who have an ESG score available) filing a CSR report in FY 2019, an increase of 5 percentage points on the previous year (78% in the Netherlands, 80% in Belgium). It’s anticipated that in time, CSR reporting will become a mandatory practice, hence, many firms are opting for a head start. Not only is more reporting evident, but companies are also actively taking steps to verify their data and disclose disparate metrics relating to their sustainability performance. This has led to a persistent and key challenge surrounding sustainable investing: a perceived lack of trust in the reliability of this data. This prompts 25% of companies to hire external auditors to verify their ESG data, and in Luxembourg specifically, that figure stood at approximately 40% (FY 2019), trailing just behind the Netherlands (48%) and just in front on Belgium (34%).

How can Refinitiv help?

Refinitiv recognises the importance of transparent, accurate and comparable ESG data. Not only is this key to the success of macro-policies such as Luxembourg 2030, more specifically, it is key to company-wide policies that will drive value and lead to the effective achievement of sustainability goals. This is particularly relevant in the current climate, with certain ESG factors pushing to the forefront, such as diversity and inclusion, wellbeing and environmental impact - all highly likely to play a key role in future sustainability reporting. Our report, Governance & Sustainability: Inside not just beside the business highlights the development of some encouraging trends in terms of sustainable leadership. The report is leveraged by Refinitiv’s ESG database, which comprises over 450 ESG measures dating back to 2002, and covers more than 80 percent of global market capitalization.

ESG data reported as of 09 2020. Data representative of FY2019, based on 25 companies reporting in Luxembourg, 64 companies reporting in Netherlands and 44 companies reporting in Belgium.