The blind spots and loopholes of ESG reporting

There has been a bitter taste left in the mouths of ESG enthusiasts. The French dependency care group, ORPEA, has been under a lot of pressure since the release of “Gravediggers”, a book written by Victor Castanet. According to reputable sources of the likes of Reuters, Bloomberg, and The Financial Times, the care group has undertaken less than honourable actions to maximise profit. As the situation escalates and the tension brews, questions regarding the accuracy and use of ESG and CSR reporting resurface. Indeed, this is not the first time that such a scandal occurs.

The true question remains: how did we not predict this? 

ORPEA is a group with a squeaky-clean track record, or at least that is what the data says. But how could data stray so far from reality?

Indeed, the ORPEA group has consistently been graded considerably high according to ESG reporting methods, especially when compared to the industry mean. It is events such as these, that articulately demonstrate the shortcomings of extra-financial reporting.

This particular instance immaculately illustrates the difficulties encountered when trying to relate both ESG performance and operational performance. As if lost in translation, relating both types of performances has become a Sisyphean task; and its incompletion is a great hindrance to the smooth sailing of ESG reporting processes.

ESG reporting has several flaws which groups such as ORPEA have used as loopholes. Perhaps the issue with ESG lies in the Manichean nature of the data it exploits; quantitative data although extremely useful is not prone to pick up the intricate nuances of a company’s inner workings.

Practices such as auditing data and consistency checks can help mitigate such risks; however, as ESG becomes increasingly sought-after it is important to consider ways of standardising and improving our data points. ESG reporting alone is not sufficient proof of trustworthiness, and the actions undertaken by companies will speak far louder than any written words.