Policymakers must “substantially increase” the availability of granular emissions data, according to the Network for Greening the Financial System (NGFS).
The green central banking group found in a report published last week that, despite emissions data being the most commonly used proxy for climate risk in financial markets, the metric had the most prevalent gaps.
The findings were based on a ‘directory’ of available climate-related metrics and data sources that the NGFS is developing, which highlights that nearly half of all emissions data (47%) from commercial and non-profit providers was either based on estimates or could not be traced to an identifiable source.
Data reported by companies themselves is considered the ‘gold standard’ for corporate sustainability information, but historic underreporting has created a reliance on third-party estimates. Studies show that the methodologies behind those estimates can diverge significantly from company-reported data and that such estimates are at least 2.4 times less effective at identifying the most polluting companies compared with reported data.
The NGFS also pointed to challenges in sourcing data that uses satellites to monitor geographic locations in real time, and forward-looking data on climate hazards such as drought, floods, biodiversity and forest depletion. Gaps within these three data types limit the ability of financial institutions to apply them in investment and lending decisions, and to size their exposure to climate risks, the body said.
Based on its findings, the NGFS has asked policymakers to improve the availability and reliability of emissions and other climate data by supporting global disclosure standards, developing harmonised taxonomies and metrics – particularly forward-looking metrics – and leveraging existing and future data collection tools through automation and centralised databases.
The report and accompanying recommendations mark the final output of the NGFS workstream on bridging data gaps and follows an interim report published in April.
The NGFS will develop a website to host its data directory and is exploring ways to house and update it as “a public good” that “should be broadly and easily accessible”.
Last month saw plans announced for a “unified global open climate data platform” by French President Emmanuel Macron in partnership with the Glasgow Financial Alliance for Net Zero (GFANZ) and the UN.
The platform will “collect, aggregate, and standardise net-zero climate transition data based on private sector climate commitments”, the initiative said in a statement at the time. A newly created Climate Data Steering Committee will oversee the design of the platform.
“Today, the net-zero commitments made by the private sector, and the underlying data driving them, are not reported consistently. Most of the existing data platforms are inaccessible to the public, and none are comprehensive, preventing regulators, investors, and other stakeholders from evaluating business and financial institutions on their material climate risk and progress toward net zero,” the statement said.
It added: “The creation of an open-data platform will bring transparency and accountability to the commitments companies and financial institutions have made through UNFCCC’s Race to Zero Business Ambition for 1.5C and the Glasgow Financial Alliance for Net Zero.”
Elsewhere, the EU has been working on a European Single Access Point (ESAP) as part of its sweeping efforts to encourage sustainability disclosures. The database, which has been under discussion since 2018, will collate sustainability disclosures made by EU companies.
EU member states recently agreed a negotiating position on the ESAP’s creation, under which it will begin populating its database from 2026. Companies are required to make sustainability disclosures from 2024 under new EU reporting rules, but an EU spokesperson told RI “it was considered useful to go for an implementation in phases, in order to allow for sufficient time for quality control and possible adjustments of technical guidelines”. The EU parliament has until January 2023 to establish its position ahead of negotiations with member states next year.
It is unclear whether the EU’s efforts to create a sustainability database are aligned with those being led by the French government and GFANZ. GFANZ declined to comment on whether the climate data platform will be linked to the ESAP, or if it had engaged the EU on the topic.
An EU Commission spokesperson said: “We do not perceive the potential duplication of resources as a risk. ESAP will make accessible to the public a broad range of EU data, whereas the One Planet Hub would have a targeted approach focusing on worldwide climate data. These initiatives would be complementary, rather than competing with one another.”
It would be “too early to envisage an engagement of this nature” considering that legislation to establish ESAP has not yet been adopted, they said.
Separately, the Financial Stability Board and International Monetary Fund have published a new workplan to address data gaps relating to emerging policy needs, which will include climate change-related metrics. Data points being considered include national emissions and energy mix tracking, green debt and equity financing, physical and transition risk indicators.
The workplan will be submitted to G20 finance ministers and central bank governors later this year and is expected to be implemented within five years.