Value2Society FTSE 350: The State of Disclosures
Introduction
In a previous blog we discussed the methodology used to calculate the FTSE 350 Value2Society (V2S) scores. Before we dive into the results, we’ll expand on the insights we gained from analyzing the sustainability and ESG (Environmental, Social, and Governance) reports of FTSE 350 companies. This analysis sheds light on the current state of sustainability disclosures, which we explore in detail below.
Methodology for Supplementary Disclosure
As prior explained, our analysis began by collecting various ESG data reported by FTSE 350 companies in their annual financial and sustainability reports. We grouped this data into broader quantitative and qualitative categories, identifying 442 reporting categories—48 qualitative and 394 quantitative. We then refined these into 40 key quantitative indicators for cross-company comparison.
Key Insights from Company Disclosures:
Of the FTSE 350 companies, about a quarter were excluded from our analysis because they were investment trusts or closed-end funds, leaving 265 companies from which V2S scores were derived. Our focus was on assessing the completeness and quality of ESG disclosures, which are currently central to 'responsible investment' decisions.
1) Incomplete and Inconsistent Reporting - As expected, we found significant gaps in data coverage. Of the 40 key quantitative indicators, only 9 were disclosed by more than half of the companies, and just 19 by more than a quarter. This makes it difficult to compare companies across key sustainability metrics.
More concerning is the broader pool of quantitative indicators: less than 10% of these were disclosed, underscoring the lack of comprehensive and comparable data.
Additionally, we found inconsistencies in the sustainability frameworks used by companies. About one-third adhered to recognized frameworks like the Sustainability Accounting Standards Board (SASB) or the Global Reporting Initiative (GRI), which allow for meaningful comparison. However, over 10% of companies did not follow any established reporting framework at all.
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2) Scope 3 Emissions Gaps Even where companies reported under recognized frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), gaps persisted. For example, while companies listed on the Main Market of the London Stock Exchange must report their greenhouse gas (GHG) emissions, Scope 3 emissions (from the value chain) remain voluntary. Many companies reported Scope 1 and 2 emissions, but fewer than 1 in 5 disclosed detailed sub-categories of Scope 3 emissions—despite the fact that Scope 3 often represents 80-95% of a company’s total emissions.
3) Data Gaps in Industry-Specific Indicators
We also uncovered troubling gaps in data critical to understanding the sustainability performance of specific industries:
4) Granularity of Reporting
Another major issue is the lack of detailed reporting on specific pollutants. For instance, many companies in the materials sector report only general information about hazardous waste disposal, without specifying the chemicals or quantities involved. This makes it difficult to assess the full environmental & societal impact of their operations.
To address these gaps, our V2S methodology uses modelled estimates to fill in missing data, ensuring a more complete picture. Additionally, we’re working on integrating Earth Observation satellite data to enhance the granularity and transparency of impact measurement, especially in areas like land use, methane emissions, and water pollution.
Summary
This blog highlights the significant gaps and inconsistencies in Sustainability / ESG disclosures across the FTSE 350. From missing industry-specific data to varying reporting frameworks, these gaps pose a serious challenge for investors trying to assess companies' sustainability performance. Route2 offers the way forward ... #value2society