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Home Insights Can we trust the numbers behind ESG? | Richard Hardyment

Can we trust the numbers behind ESG? | Richard Hardyment

INSIGHT by Richard Hardyment, the author of the book ‘Measuring Good Business: Making Sense of ESG Data’ , Head of Business Engagement at the Institute of Business Ethics


Published by investESG

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The rise of ESG has been driven by data. Ratings, rankings, indices and datasets are powering a revolution in sustainable finance. But how far can we trust the numbers? And what might the future hold for data users?

A new book, Measuring Good Business: Making Sense of ESG Data, delves into the past, present and future of the digits. It explores the limits to measuring sustainable business and sets out solutions to overcome them. It begins with a fundamental question: how far can we measure any business’s interactions with people and planet? From diversity to climate, good governance to sustainable consumption, there are a huge range of complex impacts and dependencies. Are today’s ESG scores accurate enough to inform investment decisions?

Measurement is using numbers to explain the world. But reality is not easy to quantify. Some issues lend themselves to standardised quantification. Take greenhouse gas emissions. They have physical, concrete attributes that are directly observable. Emissions are uniform: those created in one location can be directly compared with another. Uniform numbers are directly comparable because the underlying attribute is the same. This uniform approach can be taken for ESG data on water, waste, counting employees and a few other topics like tax and salaries. Provided the same yardstick is used, we can count and compare like with like, confidently.

But here’s the problem: most responsible and sustainable business issues are abstract concepts. Things like decent work, discrimination, human rights, responsible products, natural capital, responsible lobbying and climate resilience are not uniform. They are complex phenomena. They are ideas, made up of many parts. When we think about an ethical culture or a regenerative supply chain, we are not trying to count a single attribute. Instead, the inherent complexity, diversity and subjectivity of these concepts mean that we need to use proxies to simplify, categorise and count them.

Most ESG ratings take a very simple approach to complex topics like nature or human rights. They have to, because they are based on corporate disclosures that must be scaled and compared across thousands of companies. Does a policy exist? Is there a target? What are the governance processes? These are shortcuts, simplifications of a complex reality. We must never mistake the metric for what we are trying to measure. This doesn’t make the numbers useless. But caution is warranted. The numbers may tell us something useful provided that the metric (the proxy) has a strong relationship with the outcome (reality) that we are interested in.

What does this mean for investors? The key for anyone using ESG data is to lift the bonnet, ask questions, sense check and triangulate, and accept that there will always be different ways of measuring. There will always be some things that we can’t measure and others that we don’t know. Sometimes what we can’t capture is more important than what we can. Humility is vital.


We must never mistake the metric for what we are trying to measure. This doesn’t make the numbers useless. But caution is warranted.


The truth is that there is no right way to measure corporate sustainability. There are no universal criteria for a good society. Some activities are clearly more socially permissible and environmentally friendly than others, yet distinguishing the gradations is always controversial. Sustainable development has always carried tensions and debate, particularly around how to strike the right balance between economic growth and environmental impacts.

Measurement requires conscious choices. So we shouldn’t be surprised if views differ on what good means. This is why ESG ratings often don’t always agree with each other on the same asset’s score. We can integrate the science and global norms, and standardise the metrics through standards and regulation, but there will always be differences of perspective, multiple viewpoints and changing contexts.

Future finance

The challenges of measurement can be solved by looking to the future. Artificial intelligence (AI), spatial finance and data tagging are already creating powerful new opportunities for data makers and users. The key to overcoming the limits to measurement is to open up new data sources. The future of ESG measurement will be more plural, open, inclusive and bottom-up.

Measuring Good Business peers into some of the new constellations of data that we might see in the years ahead. Investors of the future will likely have highly bespoke data points to capture business drivers, impacts, ethics and dependencies. Future rating systems will give a full 360-degree view of the business across space and time: spanning the full value chain, back in time and projected scenarios of future risks and opportunities. Powered by AI, triangulating data points from massive data sets becomes possible. This will open up new opportunities that are top-down and bottom-up. For example, satellite data on impacts can be tied to corporate locations, such as pinpointing deforestation and tying it to a company on the ground. This can be complemented with data from media, NGO and on-the-ground, human sources. Participatory measurement involves inviting stakeholders like suppliers, customers and employees to input their experiences and observations to help shape the numbers. Such inclusive data doesn’t replace standard disclosures but complement them.

In the coming decade, we will see more dynamism in the time series: real-time data that gives authentic insights into how a business is embedded in nature and touches lives across the planet. We will likely see a transition away from one-off, annual reporting towards an ongoing process of accountability. By opening up where data comes from and when we have access to it, investors will have perspectives into a suite of metrics across the spectrum of social, environmental, economic and ethical topics. This can provide decision-useful data for a wider range of strategies from enabling better risk-adjusted returns to wider applications like impact investing and ethical screening. We can expect more active investors to engage directly with portfolio companies – not just at the AGM but on the ground: scouring workplaces and supply chains for commercially critical knowledge to judge impact. Rather than attempting to define the perfect singular gauge of impact, a plural approach will be more responsive to changing expectations. Funds will be expected to disclose in real time their holdings and rationales, with transparency on the motives, for example why a particular voting decision was made or stock was picked.

Product Impact

Innovation in measurement will enable novel insights into product impacts. From automobiles to pharmaceuticals, plastics to textiles – it’s how we consume that often creates for the biggest impacts and risks. Yet remarkably little data is currently available to investors on how product portfolios shape human health, well-being, life chances and the environment and the risks resulting from such exposure. This is because products are complex and diverse. They are unique and un-standardisable. Assigning categories and numbers to compare the social value of medicines, technologies or foods requires a whole series of judgements. Yet this is exactly the type of contextual, nuanced and subjective area where investors can gain a real edge through better understanding the impacts of products on people and planet. Impact investors will likely lead in this area but new approaches to bottom-up measurement will enable fresh perspectives across the market.


Sustainable finance in the years ahead will inevitably entail hyper-customisation to meet diverse needs.


ESG is a plural market. The needs of different data users are hugely diverse. There can be no one size fits all. Investors start with differing objectives, timescales and appetites for risk. Hence sustainable finance in the years ahead will inevitably entail hyper-customisation to meet diverse needs. This enables a more personalised finance that reflects the highly diverse views of high net worth and retail investors as well as ultimate beneficiaries. If one person saving for their pension thinks that animal welfare is the most important topic in the world, but another thinks diversity matters most – the market must customize modular solutions. This granularity can be powered by technology and new forms of data. This plurality mirrors the real world: a multifaceted, dynamic and contested interaction of values, impacts, dependencies and futures. The limits to ESG measurement mean we should ask much better questions of the numbers today. Yet the most incredible opportunities for insight and action lie with sustainable finance of tomorrow.



Measuring Good Business: Making Sense of Environmental, Social and Governance (ESG) Data

by Richard Hardyment

Published by Routledge


brief bio

Richard Hardyment has spent over 15 years advising and assessing companies on corporate sustainability. Before joining the Institute of Business Ethics, he was the first Research Director at the World Benchmarking Alliance, a Director at Corporate Citizenship and an advisor to Forum for the Future. He is an independent member of B Lab’s Multinational Company Standards Advisory Council. He studied at the University of Cambridge and Imperial College and continues to lecture at both on sustainability measurement and ESG data. He is the author of Measuring Good Business: Making Sense of Environmental, Social and Governance (ESG) Data and The Wellbeing Purpose: How Companies Can Make Life Better.

All opinions expressed are those of the author and/or quoted sources. is an independent and neutral platform dedicated to generating debate around ESG investing topics.

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