[White Paper] Transforming Sustainability through Machine Automation
Transforming Sustainability through Machine Automation: A Look at the Emerging Sustainable Markets
By Dr Priya Dev, ESGTech
This White Paper was written as part of Project Virtus, and addresses pertinent issues in the ESG space, including the information asymmetry gap in sustainable capital markets, the future of machine-readable ESG data, and deep-dives into ESG accounting and management.
It seeks to create a sustainable market with 3 key takeaways:
Measure and track ESG performance
Share sustainability data in machine readable formats, and
Assess sustainability data when making decisions.
If you are interested in the emerging space of ESG and the intersection between ESG, software and supply chain management, we encourage you to read this white paper and consider how its insights might be applicable to your work or organization.
Towards Sustainable Capital Markets: The Importance of Information Symmetry
(Part 1 of 7)
Capital markets have made efforts to create sustainable markets that balance economic growth with ecological and social considerations, but these efforts have yet to be fully realized. One major barrier to creating sustainable markets is the presence of information asymmetry, or the gap in knowledge between buyers and sellers. This gap can lead to capital misallocation and greenwashing, where companies make false or misleading sustainability claims. To create truly sustainable markets, we need to close this information gap with new tools that measure and communicate sustainability in an evidence-based way. By addressing information asymmetry, we can create fair, trusted, and competitive markets that support the long-term viability of sustainability.
Sustainable investment is a key component of sustainable markets, requiring accurate and comprehensive information about the environmental and social impacts of potential investments. However, information asymmetry, or the knowledge gap between investors and investees, can obstruct the allocation of capital to truly sustainable recipients. This is especially relevant in the context of the United Nations Principles for Responsible Investment (UNPRI), a network of over 5,000 investment managers and asset owners committed to creating sustainable markets (UNPRI, 2022). UNPRI signatories attract significantly more capital flows than non-signatories, according to research from the Singapore Management University (Liang, Sun, and Teo, 2020), yet only 25% of assets under management (AUM) (US$35T) incorporate Environmental, Social, and Governance (ESG) criteria into investment decisions (Bloomberg, 2021) - UNPRI signatories collectively account for US$120 trillion of assets under management (AUM) (PRI Annual Report, 2021), or around 86% of global AUM (US$140 trillion) (Bloomberg, 2021). This suggests that UNPRI signatories are not incorporating ESG criteria into the majority of their investments. Yet investors may be directing funds to UNPRI signatories based on a belief that their investments will be allocated to sustainable businesses. Correcting for information asymmetries across the UNPRI network will help ensure that capital is directed towards truly sustainable recipients, supporting the long-term viability of sustainable markets and the achievement of UNPRI's goals.
Information symmetry is essential to the functioning of effective markets. In a well-functioning market, all participants can distinguish between the quality of goods and services, ensuring that overall market quality is maintained (Akerlof, 1970). Similarly, in sustainable markets, all participants…
About ESGTech
Launched in 2019, ESGTech provides companies and capital providers with a technology platform to enable full ESG data management, with traceability and audit capabilities throughout their entire supply chain.
Our customers save time and cost, and importantly allows them to manage their ESG data and performance directly, utilising international standards and frameworks where needed, but retaining the flexibility to customise their disclosure to suit their circumstances. It is also great for collaboration, internally as well as external advisors and consultants.
Designed to be inclusive of all companies both from a scalability of functionality and from a price perspective, we believe our platform is leading the way in terms of ease of useability, efficiency, and functionality.
Our work is an important step towards a future where all capital is priced for sustainability and all corporations can measure the impact they have on the world around them.
It is a big ambition for a better tomorrow, and it starts with better data.