Climate change: A review and analysis of globally adopted ESG reporting, and rating methods applied to New Zealand organisations

Abstract

RESEARCH AIMS The aim of this study is to undertake a review of three ESG reporting and six ESG rating systems. Specifically, the study‘s objectives will be to: 1. Identify the challenges involved in reporting on and rating the ESG performance of business organisations. 2. Explain what differences and/or similarities exist among a sample of the most widely used ESG reporting systems. 3. Consider the implications of there being competing methods for the reporting of business ESG performance. 4. Apply different reporting systems to two New Zealand companies and different rating systems to six New Zealand companies with big environmental impacts to determine how consistent the reporting and rating systems are.

ABSTRACT The increasing demand for information about businesses’ environmental performance, especially with respect to climate change is reflected in the growth of investment in ethical/green funds. However, there are questions about the reliability of reporting and rating systems. Based on a review of three ESG reporting and six ESG rating systems, the report examines the capacity for divergence when applying different reporting/rating systems to the same organisation. The overall research design is a mixed method using both qualitative and quantitative data.

Two New Zealand companies were analysed using two ESG reporting methods: GRI and SciBeta’s carbon footprinting methods. Six New Zealand companies were also analysed using two ESG rating methods: Thomson Reuters Asset and FTSE 4Good methods. As these rating systems do not disclose their methods in detail, a personal judgment scoring method evaluates the rating systems. The results indicated that the two reporting methods provided different assessments of the environmental performance of the same organisation. The two rating systems also provided almost a 70% divergence in their assessment of the same company. The results confirmed a low convergence in ESG data and the unreliability of ESG data as a measure of environmental performance. The study recommended that organisations consider a range of ESG reporting methods when reporting ESG data to ensure the information captured is representative of their contributions to climate change. Regulators need to standardise ESG reporting as well as the measurement techniques for GHG emissions to allow more reliance on ESG data. Rating agencies also need to develop comparable ratings that can be applied to the same organisations.