Goldman Laments ‘Noise’ of ESG Data Barrage Amid New Rules

The head of sustainable finance at Goldman Sachs Group Inc. says companies are starting to provide more data on their climate and social metrics than is useful for investors.

John Goldstein, who’s been running the Wall Street firm’s sustainable finance group since it was created in 2019, says the risk is that asset managers lose track of what’s important, and businesses buckle under the paperwork as they try to demonstrate their commitment to environmental, social and governance goals.

“My mantra tends to be: if we could have better data on fewer things that matter more,” Goldstein said in an interview.

“Companies feel like they’re asked for too many different things by too many different people, and that the list is changing,” he said. And “investors feel, to some degree, that they get a lot of noise and not a lot of signal.”

Companies are racing to adapt their businesses as politicians, regulators and investors acknowledge that capitalism needs to change to prevent a catastrophic overheating of the planet. But the sheer volume of new regulations presents a challenge for both firms and investors as they try to figure out what’s expected. Goldstein says that to gain access to financing, some companies are having to provide more data than genuinely aids transparency.

Fitch Ratings says the European Union’s taxonomy requirements will help investors and regulators determine how sustainable a project or asset is, but “impose complex disclosure requirements on corporates.”

Goldstein says the concern is that some of the demands being made on corporations might be counterproductive. “All of these emerging metrics, tools and data sets, when you get into the algebra of them, there still is that challenge of: do they inadvertently say you’re going to look a lot better if you just avoid the hard-to-do stuff?”

He recalls a meeting with a chief financial officer who told him that she “had been asked for 2,000 different ESG data points in the last year.”

But asset managers can’t afford to ignore ESG considerations, whether they’re pitching an investment product as sustainable or not, Goldstein said.

“Increasingly, there needs to be an ESG story,” regardless what kind of product is being sold, he said. At the same time, excluding a company from portfolios “doesn’t mean it miraculously ceases to exist.”

Government and international standard-setting authorities have acknowledged that greater coordination is needed, not least to ensure comparability across companies and asset managers, and to prevent greenwashing. The European Union last month unveiled new standards for classifying sustainable investments and expanded the climate reporting requirements that officials hope will be used globally.

Meanwhile, the market for sustainable investments is booming. Global issuance of ESG bonds will probably exceed $650 billion this year, after offerings tripled in the first quarter alone, Moody’s Investors Service said.

Part of this year’s surge is due to the change in attitudes in the U.S. since the election of President Joe Biden, according to Goldstein.

“If we look back at 2020, which was a pretty remarkable year for sustainable investing in ESG, all of that really happened with U.S. federal policy as a fairly pronounced headwind,” he said. Now, the U.S. “is a tailwind.”

©2021 Bloomberg L.P.

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