"The banks don't know what to do themselves"
The call for robust sustainability-related information often leaves not only medium-sized companies but also financing banks perplexed. Ordinary companies, unlike many capital market-related corporations, are far from solid ESG reporting and are overwhelmed with the task, said Wali Manan, co-founder of the software startup ESGendium, on Thursday at the "Green Transformation Incubator" conference at the Techquartier in Frankfurt.
There is a sense of uncertainty among financiers regarding what specific ESG reporting requirements they can demand from companies. "The banks we talk to don't even know what to do themselves," said the founder. Dealing with reporting obligations, which are expected to impact many companies with European regulations, is gradually evolving.
Call for quick-and-dirty solutions
The startup offers a program that guides small and medium-sized companies step by step and can help create rudimentary sustainability reports. The initial goal is not sophisticated ESG disclosures but practical "quick-and-dirty solutions," as Manan put it casually.
Banks primarily want to see that companies have an understanding of ESG criteria. This includes not only greenhouse gas emissions but also, more than with large corporations, social criteria such as metrics and assessments of workforce diversity or fair contracts.
"Sheer complexity of things"
Yet, even in cases where sustainability reports are already sophisticated, making concrete statements remains challenging, as highlighted at the conference. The "sheer complexity of things" complicates the decision-making process regarding sustainability, said Sebastian Hoepfner, a data scientist and consultant at Deloitte. For example, there are numerous studies on the climate impact of electric cars, each plausibly justified but yielding different results.
Eurex, a subsidiary of Deutsche Börse that acts as a clearinghouse in derivative trading, acknowledges differences between ESG rating agencies. The clearinghouse relies on data from sustainability specialist ISS and discloses ESG metrics for collateral held in clearing. The result "might look potentially different if we were to use a different rating agency," said Eurex expert Elizabeth Regan. Deutsche Börse acquired ISS three years ago.
No fear of greenwashing
The concern of being accused of "greenwashing" in the public further unsettles companies, explained ESGendium co-founder Manan. It should not be a solution to completely abandon ESG reports, added Eurex expert Regan. Clear communication is crucial. Knut Peters, co-founder of the data start-up Zero 3, emphasized the need to be cautious with promises.
The company assists businesses in measuring greenhouse gas emissions in their supply chains. The current progress in emission reduction is unlikely to be sufficient to achieve existing climate goals. For many companies, the initial focus is simply to gain an overview of the impacts of their business, according to Peters. The journey is still far from complete.
