Investors keep their eyes on ESG, but data and reporting remain challenges

Despite regulatory changes and a challenging international context, sustainability appears to remain on the radar of investors and companies , according to reports from stock exchange owners to companies and law firms, although concerns about "green" are also noted. Challenges remain, particularly in reporting and collecting this data. The quality and comparability of data, investment in structures responsible for the topic within companies, and finding qualified professionals are still challenges highlighted by various stakeholders.

“ We continue to feel from our stakeholders , clients, investors, listed companies and other participants, that these [sustainability] topics continue to be very relevant, ” introduced Euronext CEO Isabel Ucha at the event “Sustainability, Return and Risk: Finding the balance in discourse and practice”, which took place on the first day of Euronext Sustainability Week , a week dedicated to sustainability that runs until this Thursday.

Ucha highlighted that, in the second quarter of this year, according to Morningstar data, there was a net investment of nearly $5 billion in sustainably labeled funds and ETFs globally. This figure, he believes, indicates that " ESG issues remain on the agenda and investors continue to give them relevance ."

ESG issues remain on the agenda and investors continue to give them relevance.

In assessing the challenges and opportunities in the area of ​​sustainability, Assunção Cristas, partner at Vieira de Almeida in the Environment & Climate Area, noted that "there's a world that talks and another that does, and they don't always necessarily coincide." Despite some recent setbacks in sustainability legislation at the European level, "regulation is important, but it doesn't decide everything," and looking at investors and financiers, "they don't seem to be disinvesting in this area."

When asked at the same event whether there is a natural fit between ESG matters, Nuno Vieira, Head of Investor Relations (IR) at CTT, responded that "it's not obvious that it's a natural fit , but it's not the opposite either." While, on the one hand, " strategy and data are increasingly beginning to embed sustainability, and increasingly moving hand in hand with investor relations ," he also notes "up and down."

" In the hundreds of meetings I've had with investors this year and last year, I haven't received proactive questions about sustainability metrics or specific sustainability issues ," he shares, although it's common to discuss business challenges such as fleet electrification and circularity, topics linked to sustainability. In a survey CTT conducted with investors, in which it asked about the importance of ESG issues, they responded that it was "not particularly relevant." Still, Nuno Vieira emphasizes that he believes investors' concerns vary depending on the company's business or even its size. " Sustainability, ultimately, is the sustainability of the business ," he indicates.

In the hundreds of meetings I've had with investors this year and last, I haven't received any proactive questions about sustainability metrics or specific sustainability issues.

The experience of Ana Rovisco, Global Director of Sustainability and ESG Relations at the Jerónimo Martins Group, is somewhat different. She states that, while 15 years ago only about 12 entities questioned the retailer about sustainability, ranging from healthy eating initiatives to climate goals, in the last two years she has received contact from more than 50 entities interested in these types of indicators. Along with her colleague in Investor Relations, she claims to be receiving increasingly multidisciplinary teams specialized in various sustainability-related topics .

At Floene, "ESG and financial figures are currently aligned," says Joana Appleton, head of IR and Risk, ESG & Stakeholders, as energy transformation and renewable gases "are part of the business, and it's impossible for everything to be integrated." She claims this culture is fostered by the company's main shareholder.

ESG numbers and financial numbers are on par [at Floene].

Daniela Lima, Knowledge and Training Manager at BCSD Portugal, states that the finance and sustainability teams need to share the same language and objectives "so that everything is more unified," adapting their approach not only to the target audience but also to their colleagues. She believes that the financial and sustainability strategies should be one.

Transparency is the soul of business, it is no longer a secret.

Sustainability in business, according to Inês Palma Ramalho, Financial Regulation partner at Pérez-Llorca, is both an opportunity and a challenge. " Those in the company must explain to investors how this [ESG] ultimately yields an ROI [return on investment]" and that it has added value, she warns.

“ Transparency is the soul of business, it is no longer a secret ,” concluded Filipa Pantaleão, president of BCSD Portugal.

Swaps and trades confuse the game

Assunção Cristas sees 2024 as "a year of great change," in which the word "competitiveness" has become central, as a result of the wars in Ukraine and the Middle East, concerns about energy security, and growing competition from China and Southeast Asia, as well as the "push" provided by the Draghi report. In her view, decarbonization has not been removed from the agenda, but it is increasingly linked to issues of defense, security, and energy autonomy .

It is in this context that the Omnibus package emerges, which simplifies sustainability legislation such as the European Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), with several voices criticizing the simplification as a weakening .

But is there a real shift in Europe regarding sustainability? Cristas states that "we still have to see," because "what's said is one thing, what's written in the law is another." So far, the legislation has mostly been enacted to give companies more time, but it's still unclear what the final version of sustainability regulations will ultimately look like.

The former minister believes that this is a time for companies to "take a breath, analyze and reflect, in a less imposing way and more based on a logic of flexibility and voluntary", but "without letting this agenda fall by the wayside".

If we consider that Portugal is mainly [made up of] SMEs, in this sense, the scenario [of sustainability reporting] is not very famous.

Inês Palma Ramalho, Financial Regulation partner at Pérez-Llorca, believes that the level of implementation and maturity of 'green' reporting requirements is "directly proportional" to the size of companies and the amount of money available to invest in structures focused on this task. " If we consider that Portugal is primarily made up of SMEs (small and medium-sized enterprises), in that sense, the scenario isn't very good, " she concluded.

Another challenge is that companies depend on market incentives, and "significant confusion" has arisen with the Omnibus package , he says, while also noting overlapping rules and fragmentation.

Added to these issues is the challenge of data quality and availability , as well as finding specialized ESG human resources, which "are scarce." Teresa Pinheiro, Sustainable Finance Analyst at Moody's, emphasizes that the rating agency seeks audited and comparable data, but "doesn't always find it." In any case, she points out that more information is always preferable to less; in fact, "the more, the better."

In Jerónimo Martins' experience, applying the regulations has been "a real challenge," given the level of detail required, as well as the "almost excessive repetition" of what is required, while also aiming to make the information readable , "maintaining accuracy while still allowing a less specialized reader to understand." Furthermore, it's difficult to harmonize European requirements with the indicators required in other regions, such as Australia or North America, and even between what the regulator wants and what investors demand.

I think sustainability is a train that never stops. Whether it's a TGV or one that stops at every station and stop… We'll see.

"The annual report is important in investor relations, but I'd say it's not the most important," says Nuno Vieira. He also notes that he receives more requests for clarification following earnings presentations, press releases, or roadshows.

Regardless, Ana Rovisco is optimistic: " I think sustainability is a train that won't stop. Whether it's a TGV or one that stops at every station and stop... We'll see ."