Barriers to Using ESG Data for Investment Decisions

TLDR

Institutional investors rely on ESG data, yet widespread quality concerns—highlighted by the Global Reporting Initiative—have discouraged its use. The study maps the ESG data reporting process to identify stages where quality issues arise. Semi‑structured interviews were conducted with ESG analysts, rating agency staff, and institutional investors to examine the reporting workflow. Findings reveal that barriers to ESG data use stem from materiality, accuracy, and reliability gaps, limited government data access, and divergent views between companies and investors, offering guidance for companies, investors, and regulators.

Abstract

Institutional investors who commit to integrating environmental, social and governance (ESG) aspects into investment decisions require ESG data of sufficient quality. However, concerns have risen over a lack of quality in ESG data, as outlined by the Global Reporting Initiative. The lack of quality in ESG data deters institutional investors from using the data for investment decisions. This study outlines the ESG data reporting process and explores where in the process quality concerns emerge. Semi-structured interviews are applied with professionals involved in ESG data analysis and reporting of listed companies, a rating agency and institutional investors. The results show that current barriers to using ESG data include a lack of materiality, accuracy and reliability. Interviewees agree that access to data collected by governmental institutions is lacking, and that companies’ purchase of carbon credits raise questions about the reliability of ESG data. Companies hold contrasting views to the institutional investors on the useability of the data they disclose. The results enhance our understanding of the common and contrasting concerns about the lack of quality in ESG data. The results can be used as guide for companies, investors and regulators for actions to mitigate barriers related to the lack of quality in ESG reporting