Twenty years of financial rigor, until recently absent from ESG
It took financial markets twenty years to mandate traceable, documented, and verifiable data after the 2008 crisis. ESG long escaped this requirement, as it did not carry enough weight in investment decisions. With the revision of SFDR, that era is coming to an end.
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An asset manager who receives questionable financial data does not keep it in their model. They demand a source, a calculation method, and an audit trail.
This requirement is nothing new: after the 2008 crisis, it took nearly fifteen years of continuous reform—from the Basel III agreements negotiated starting in 2010 to their implementation, which is still ongoing today—to rebuild trust in the transparency and reliability of banking data.
These reforms did not just strengthen bank capital; they also mandated more rigorous financial disclosure and risk governance that no institution can afford to ignore today.
Yesterday's ESG tolerance
When it comes to ESG, this requirement has not had the same amount of time to take hold.
Until recently, a manager could incorporate an estimate without a documented method, a proprietary rating with an opaque calculation, or a figure carried over from one year to the next without verification.
This tolerance stemmed from the still-marginal weight of ESG in investment decisions, rather than a lack of rigor on the part of managers. An approximate ESG figure did not enter into a valuation model, dictate a debt ratio, or trigger a covenant. It was primarily used to meet reporting obligations or binary exclusion criteria, without allowing for price or allocation adjustments. As long as ESG data remained confined to this declarative use, its degree of uncertainty had no direct financial consequence for the manager publishing it.
SFDR 2.0: The regulatory shift
The revision of SFDR raises the bar for data expectations, requiring documented methodology, proof of exclusions, and evidence of the claimed positive contribution.
In his article on SFDR PAIs, Ahmad details why this revision alone will not be enough to make data comparable, and why infrastructure matters more than the regulatory framework.
I share this assessment, and I would add one conviction: beyond compliance, investor behavior is already changing.
What companies can verify today
A company with institutional investors, one that is raising funds, or one that relies on bank financing can anticipate this shift by asking three questions about its own non-financial data:
- Can it name the person or team responsible for producing each published indicator?
- Can it trace the calculation method used, including any changes made from one year to the next?
- Can it provide the source data behind the reported figure if requested by an investor or insurer?
Many companies discover, when asking these questions, that the answer depends on a specific file or person, rather than a system.
The cost of being unprepared
A company that cannot answer these questions today will tomorrow lose an advantage it thought it had: the ability to present its non-financial performance without being questioned.
This translates to a less favorable cost of capital from a manager who has already raised their standards, a less advantageous insurance premium, or a longer investment due diligence process at the very moment it matters most.
It took the financial market twenty years to build this level of rigor following a crisis of confidence.
ESG will not have that much time, because investors who already demand it for their financial portfolios will not make an exception for their sustainable ones.