Investors grapple with inconsistent climate data amid regulatory gaps, report finds

Investors face hurdles in obtaining reliable and comparable climate-related data, crucial for assessing investment risks and opportunities tied to climate change, a report by the CFA Institute has shown.

The report, titled ‘Climate Data in the Investment Process: Challenges, Resources, and Considerations’, delves into the intricacies of using climate-related data in investment decisions. One major issue highlighted is the inconsistency in data quality and availability, exacerbated by varying disclosure standards across jurisdictions. According to the researchers, this lack of uniformity hampers data consistency and comparability, making it difficult for investors to draw meaningful comparisons.

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Recent regulatory developments like the EU’s Corporate Sustainability Reporting Directive and the US SEC Regulations S-K and S-X aim to standardise climate-related disclosures. However, the report has highlighted that many regions still lack comprehensive regulations, leading to inconsistencies in how companies report their climate impacts.

Despite these challenges, the researchers have advised investors not to be deterred. Instead, they should use their judgment to effectively utilise available data while being mindful of its limitations. The researchers suggested applying the same data interpretation techniques used for other incomplete or estimated data sets. As data availability continues to improve, investors are urged to navigate the imperfections cautiously, ensuring a balanced approach to climate-related investment strategies.

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Chris Fidler, head of global industry standards at CFA Institute, commented: “Climate-related data is key to understanding an issuer’s climate risks and opportunities, but the data is often hard to obtain, trust and compare. Each disclosure standard is sufficiently different to make consistency and comparability of the data a continuing challenge.
If financial reporting is a model, the climate-related data information journey will take a very long time, perhaps decades. To help improve the current state, investors can participate in standards-setting processes, encourage issuers to voluntarily adopt standards, and advocate for high-quality, globally consistent climate data reporting regulations.”

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