THE lack of objective data and the disparity in how entities view environmental, social, and governance (ESG) factors are today the main challenges for valuers seeking to incorporate ESG in their jobs.

Panellists at a business valuation conference organised by the Institute of Valuers and Appraisers (IVAS) and International Valuation Standards Council (IVSC) on Thursday (Oct 6) highlighted these twin barriers, while acknowledging that investors, consumers and employees are increasingly looking to associate with companies that have strong ESG profiles.

Currently, valuers typically rely on financial statements and information provided by companies’ management in coming up with their valuation reports, said IVAS chairman Lie Kok Keong, who is also a partner in PwC Singapore’s mergers and acquisitions department.

“The quantification exercise at the moment is judgemental, and… mostly done by the management. Valuers can ask questions of first principles, like whether it is logical, and whether it is reasonable to put those numbers, but right now, we don’t have independent data that we can cross-check against,” Lie said.

The International Sustainability Standards Board (ISSB) is working on a comprehensive global baseline of sustainability-related disclosure standards and will start voting on specific technical decisions at a meeting this month. It aims to issue final standards “as early as possible in 2023”, said the board’s vice-chairperson Sue Lloyd, who joined the panel virtually.

“There has been quite a lot of enthusiasm for providing information about these different types of risks, but (the information) is very varied at the moment because of the multitude of different frameworks,” Lloyd said.

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The ISSB’s objective is to get sustainability reporting into the mainstream of corporate reporting, and will focus on quantitative data that can be applied in developing and developed countries, by large and small companies alike, she added.

Some metrics that would be helpful in a valuation exercise include the risks and opportunities of a business, what respective companies are undertaking to tackle these risks, how the estimated impact on cashflow would translate into the earnings or costs of a business, and the market’s expectations on return attached to the capital or debt of these businesses.

The panel was moderated by The Business Times correspondent Wong Pei Ting, and also included Singapore’s Second Minister for Finance and National Development Indranee Rajah and IVSC’s chief executive officer Nick Talbot.

Variety in disclosure standards also heightens the risks of green and ESG-washing, the panellists noted.

Holding companies accountable to a standardised set of disclosure requirements is a first defence against greenwashing, Lloyd said.

Companies today can “pick and choose” what they wish to disclose, depending on what stories they would like to convey about their enterprises, she said.

Talbot also noted that while the environmental dimension is relatively easy to quantify, views on the social and governance factors vary across sectors and jurisdictions.

“That is something that obviously needs to be a lot more work on. I think, actually, getting close to consensus on these is going to be very difficult,” he said.