ESG data: sources, gaps and quality problems

An ESG rating is only as good as the data behind it. If a company's emissions figure is wrong, every rating, index and fund that uses it inherits the error.

ESG data come in three layers:

• Reported data: what the company itself discloses in its BRSR, annual report or sustainability report.
• External data: what others say about the company, such as regulators, courts, news reports, NGOs and, increasingly, satellite images.
• Estimated data: figures that data providers model when the company has not disclosed them.

Financial data have decades of accounting standards and compulsory audits behind them. ESG data are much younger. In India, the BRSR has given listed companies a common format since FY 2022-23, and BRSR Core has added independent assurance for key indicators. But many gaps remain, and users need to check figures before relying on them.

Main sources of ESG data on Indian companies

BRSRs are also filed with the stock exchanges in a machine-readable (XBRL) format, which makes large-scale comparison easier.

Common quality problems

1. Boundary differences. One company reports for the standalone entity, another for the whole group. A boundary change can make emissions jump or fall with no real change.
2. Different denominators. Intensity can be per ₹ crore of revenue, per tonne of output, or per unit of revenue adjusted for purchasing power parity (as in BRSR Core). The same company can look very different on each.
3. Inconsistent definitions. Water withdrawal versus water consumption; employees versus workers; permanent versus contract staff.
4. Estimates presented as facts. Data providers fill gaps with models. Unless the estimate is flagged, users may treat it as reported data.
5. Time lags. The BRSR comes out with the annual report, months after the year ends. Ratings that use it come later still.
6. Restatements. Companies revise past figures when methods change. Data providers sometimes revise their own historical scores too.
7. Selective disclosure. Good news is reported in detail, bad news briefly or not at all.
8. Size bias. Large companies disclose more, which can make them look better on ESG scores.

Global data and rating providers (one combined view)

The main global providers include MSCI, Morningstar Sustainalytics, S&P Global (through its Corporate Sustainability Assessment), LSEG (formerly Refinitiv), Bloomberg, ISS and Moody's. CDP runs the main voluntary climate, water and forest questionnaires. In India, 19 ESG rating providers are registered with SEBI. Each provider collects, cleans and estimates data in its own way, which is one source of rating divergence.

Checklist for testing an ESG figure

1. Assurance: is the figure assured? Reasonable or limited? By whom?
2. Boundary: standalone or consolidated, and has it changed?
3. Trend: does the year-on-year change make sense given production, acquisitions and disposals?
4. Cross-checks: do energy use and emissions move together? Does water intensity look plausible against peers?
5. Method notes: emission factors used, location-based or market-based Scope 2, and treatment of renewable energy certificates.
6. Source flag: reported by the company or estimated by a provider?
7. External signals: any pollution board notices, court cases or news that contradict the reported figures?