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Apr 02, 2018

Advisory Intelligence: Nasdaq eyes ESG lessons from Larry Fink’s open letter to CEOs

Nasdaq Corporate Solutions’ Tony Domel discusses the importance of standardized ESG reporting

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The high-profile letter from BlackRock CEO and chairman Larry Fink, A Sense of Purpose, which he sent to public company CEOs outlining his hope that they start accounting for their impact on society, thus placing ESG at the forefront of a new age of asset management and investment, is influencing the industry’s approach to a much-debated subject.

Tony Domel, senior analyst in strategic capital intelligence at Nasdaq Corporate Solutions, says the letter was a game changer. ‘What comes out of the Fink letter is his full sense of purpose, driving long-term goals on behalf of his clients,’ he notes. ‘It all speaks to the idea that in order to achieve these long-term goals he [must] protect and enhance the interests of his clients and mitigate risk as it relates to ESG.’

Fink’s thinking is being felt throughout the financial world. ‘We are seeing more than ever on the different sides – the buy side, active or passive, the corporate or the IR professional – more of a demand for ESG data to be standardized, whether you are trying to incorporate it into your portfolio-building or include it in your risk profile,’ says Domel.

The move by companies to report their non-financial metrics around ESG in a standardized way that can be rated and ranked is a major factor driving ESG forward as an approach, and moving toward effective measurement. ‘More than ever we are seeing a push from many sides of the market to standardize this data. It is becoming part of the due diligence process,’ Domel suggests.

As a result, there is a clear need for focused sustainability and ESG reporting that specifically identifies material, business-oriented ESG risks and opportunities and explains how these are managed.

Strategic ESG disclosure is critical to ensuring transparency and time optimization for corporates and investors, Domel suggests: ‘Time and again we have seen these massive reports that tell a lot, but they are not something that can be fully useful in building a portfolio or mitigating passive risk, and they require a lot of time and energy to compile. So it seems less can be more in the context of writing valuable, focused messaging that gets to the center of how risks are being managed.’

In addition, the promise of ESG is built on effective data transparency. Here, IR teams should not lose sight of its importance. ‘A number one priority for IR professionals is to take ESG seriously,’ says Domel. ‘A misconception regarding ESG is [that it is] a fad. It gets tied into the social and political volatility that we have been experiencing over the last year or so.’

As Fink made clear, however, his firm does not see it as its role to make social or political judgments on behalf of clients. ‘Instead, it approaches ESG as a way of identifying and considering the ESG risk and opportunities and manages it in a way that protects and enhances the long-term values and interests of shareholders,’ says Domel.

This content was produced by Nasdaq Corporate Solutions and first appeared on Nasdaq's website.

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