Find the Pressure Points

Gilad Tanay, Founder of ERI Institute, advises on how to ensure that disclosures don’t become a distraction.

Reporting regulations and frameworks are changing like the wind – and they’re consistently pushing for more data disclosure. In my view, this focus on collecting mammoth data sets is holding back social impact initiatives from delivering on their investment. It’s distracting investors from the data that will actually make a difference.

Let’s take the Taskforce on Nature-related Financial Disclosures (TNFD) as an example. In October, it was reported that over 500 companies had committed to reporting on biodiversity risk through the TNFD’s voluntary framework.

On the face of it, this is brilliant news. The new disclosures build on the climate-focused TCFD recommendations of the Task Force on Climate-related Financial Disclosures launched in 2015, meaning nature and climate-focused reporting uses similar approaches.

Even so, the TNFD’s framework includes 14 recommended disclosures across four pillars. That’s an ostensibly huge amount of information for organisations to collect and publish.

I completely recognise that the TNFD’s recommendations are just that: recommendations that organisations are not bound to implement. But nonetheless, the additional guidance signifies a worrying trend; data reporting pushes are coming thick and fast.

Mandatory reporting obligations are mounting, too. The EU’s Corporate Sustainability Reporting Directive (CSRD) is one regulatory development weighing on the minds of corporations across Europe, and beyond. Eligible firms will have to get their heads around reporting on over 1,000 data points across ten ESG topics. They must measure their impact over the short, medium and long-term, massively expanding the scope of data disclosure.

Impact per dollar

Leveraging data intelligently is the best way to confront the world’s biggest issues – and help companies deliver the most value through their investments as possible. I’m also sure that new and existing reporting frameworks will catalyse impact. But persistent pushes for mass data disclosure are distracting organisations of all shapes and sizes from the data that really matters.

At the heart of it all, firms are already experiencing reporting fatigue. Ultimately, their investment teams want reporting requirements that they can implement at a low cost, so it’s important that any voluntary reporting requirements – let alone ones they are legally obliged to disclose – deliver as much impact per dollar as possible.

The key is stepping back and making sure we are asking the right questions in the first place. Otherwise, we will just churn out more raw data while losing track of the problem we were trying to solve to begin with.

Major global challenges, like climate change and loss of biodiversity, persist for a reason. There are underlying root causes that make them resistant to change. Moreover, not all root causes are created equal. There are usually two or three pressure points that have an especially high potential to drive system-level change. These are the critical points that you should really focus your time, energy and capital on if you want to maximise impact per dollar.

Pressure points influence any given environmental or social challenge, so taking the time to identify the most significant factors is a non-negotiable when it comes to data analysis.

By taking this approach, you can compare the impact of different investments and ESG programmes and ensure you’re interrogating the right data rather than simply more of it.

In the context of the new TNFD recommendations, firms are advised to track dozens of metrics. However, when it comes to habitat loss for example, a handful of major pressure points that can make an outsize difference. In this scenario, land use is the factor we should be extracting important data from. It’s the root cause with the biggest potential to reduce the decline of endangered animals, for example.

Cut through the noise

We should not oversimplify this process. Identifying pressure points is the product of months of research, analysis, and importantly, cutting through the noise and identifying the data that really matters. You may identify just three or, in the best case scenario, one core metric that businesses should measure. Crucially, this mitigates the need to track reams of data that distract us from the core issue.

I know my view is sailing against the prevailing wind. I have spoken to impact investors, government officials, and other important stakeholders who argue that we should be doubling the amount of environmental data that companies should disclose.

But it isn’t realistic, nor does it consider that the impact investment space as a whole has more money to allocate than ever before, having grown to a market worth £76.8 billion in assets under management. So the time has never been more right for companies to mitigate wasting money on more data, just because they can afford to.

In fact, I fear this could lead to widespread complacency. More money could set the precedent for firms to say: “We’ve invested in identifying 5,000 data points that demonstrate that we recognise how to tackle the problem,” instead of: “We’ve got less money to play with this year, so we’ve identified the biggest pressure point that’s causing the problem. Now let’s discuss the project that will deliver the biggest ROI for impact.”

Countless businesses have taken proper steps toward delivering meaningful change, but until their data analysis priorities shift, they won’t have the tools they need to ensure maximum impact.

If we cherry-pick the finest data and ask the right questions, we could unlock truly transformative, evidenced social impact strategies. Let’s not miss out on an opportunity to tackle the world’s most pressing challenges while the investment space is booming.

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