As we celebrate World Earth Day today, it reminds us that obtaining comprehensive, reliable, and comparable climate-related data is challenging for investors striving to understand and assess the investment risks and opportunities posed by climate change. That’s according to a new report from CFA Institute, entitled ‘Climate Data in the Investment Process: Challenges, Resources, and Considerations’.
The CFA’s report analyses:
- The use of climate-related data in the investment process.
- The challenges of data quality and availability, including varying disclosure standards among jurisdictions making data consistency and comparability a continuing challenge.
- Recent developments in disclosure regulation and standards, such as the EU’s CSRD and the US SEC Regulations S-K and S-X announced last month. However, many jurisdictions still lack regulation which is creating inconsistencies in how companies report their impact.
· How investors can navigate the imperfections of the data.
Whilst data availability has progressed and continued improvements are expected, CFA Institute recommends that investors:
• Not be deterred and use their judgment to make effective use of the data available while being conscious of the limitations of that data.
• Apply the same data interpretation, checks, and management techniques that they apply when working with other sets of estimated or incomplete data
Chris Fidler, Head, Global Industry Standards at CFA Institute comments: “Climate-related data is key to understanding an issuer’s climate risks and opportunities, but the data is often hard to obtain, trust, and compare. Several long-awaited regulatory and standards solutions either entering force or on the horizon will help, but investors still have their work cut out for them. Each disclosure standard is sufficiently different to make consistency and comparability of the data a continuing challenge.”
“Investors should not let the current shortcomings in climate-related data prevent them from evaluating the investment risks and opportunities associated with climate change. If financial reporting is a model, the climate-related data information journey will take a very long time, perhaps decades. To help improve the current state, investors can participate in standards-setting processes, encourage issuers to voluntarily adopt standards, and advocate for high-quality, globally consistent climate data reporting regulations.”
