The Role of Transparency in Sustainability Data: Building Trust in ESG Data

Environmental, Social, and Governance (ESG) data has become an invaluable input in financial decision-making. ESG metrics are increasingly embedded in portfolio construction, corporate due diligence, and long-term risk and opportunity assessment. Yet, as the ESG ecosystem expands, so do concerns around the transparency and coherence of the data underpinning it.

Regulators and investors are raising concerns about the opacity of ESG ratings and scores. Many ESG ratings operate as a black box: users often don’t know what data was used, what assumptions were made, or how ratings were calculated. This lack of visibility erodes trust and heightens the risk of greenwashing.

Greater disclosure of ESG information is widely seen as a remedy to this lack of trust. By providing complete data lookthrough, clear and transparent methodologies and ensuring traceability to source, stakeholders can better assess the credibility and decision-usefulness of ESG insights.

Transparency in ESG data refers to the availability and clear demonstration of the processes used to gather, process, and score sustainability-related information. This includes:

• Methodology clarity: Users should understand how ESG measures are calculated and what they are truly measuring.
• Traceability: ESG scores or insights should include an audit path back to the original data sources.
• Data access: Stakeholders should be able to access both raw data inputs and the assumptions used in scoring.

Transparent systems allow users to question, verify, and even challenge the conclusions presented. In contrast, opaque providers release scores without disclosing inputs or reasoning, leaving users in the dark.

Investor and regulatory pressure is mounting for open, explainable ESG data. Regulations like the EU Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) highlight the growing importance of data traceability and accountability. Similarly, the UK Financial Conduct Authority (FCA) estimates that the lack of reliable, traceable ESG data increases sustainable fund compliance costs by 10–15%.

High-quality ESG data is not only accurate, it must be transparent, traceable, and explainable. Transparency enables investors and regulators to scrutinize the data trail, validate assumptions, and align ESG metrics with financial materiality.

Three core elements define robust, transparent ESG datasets:

Transparency begins with auditability. ESG insights should be accessible along with their underlying data. A credible ESG data provider links each score, flag, or assessment to its original source, whether it’s a company’s annual sustainability report, regulatory filing, emissions disclosure, or verified controversy record.

This traceability is essential for multiple reasons:

• Investor assurance: Investors must be able to validate whether a company’s claims (e.g., around net-zero targets or social commitments) are supported by credible disclosures.
• Regulatory compliance: Frameworks like the EU CSRD and the SEC’s proposed climate rules increasingly require defensible ESG claims. Traceability provides the foundation for robust reporting.
• Engagement and stewardship: Investors conducting company engagement or voting analysis rely on being able to trace data back to reported metrics and context.

Surface-level ESG scores rarely provide enough context for investment or regulatory decisions. Transparent providers go further, offering full lookthrough into:

• Raw data inputs (e.g., actual emissions levels, workforce diversity figures, board composition metrics),
• Scoring assumptions and weightings, including rationale for prioritizing certain indicators (e.g., emphasis on Scope 3 emissions for sectors with high value chain exposure),
• Materiality frameworks, such as whether scoring is aligned to SASB standards, EU taxonomy, or internal investment beliefs.

This level of clarity allows portfolio managers to:

• Adjust or customize scores based on their own materiality thresholds or ESG strategies,
• Understand how controversies or positive actions have affected a company’s rating,
• Conduct more precise benchmarking across sectors or regions.

Opaque scoring systems often fail to differentiate between companies with strong disclosures and those with strong performance, leading to distorted rankings, affecting capital allocation.

A transparent ESG provider must publish detailed methodologies that describe:

• How data is collected, including use of company-reported vs. alternative datasets (e.g., satellite data, NGO records),
• How scores are calculated, with weighting logic and scoring bands explained,
• How industry and regional differences are accounted for, including sector-specific risks, regulatory environments, or data gaps.

Importantly, these methodologies should be accessible, regularly updated, and peer-reviewable, not hidden behind proprietary walls.

Asset managers working with opaque ESG data providers often face higher operational burdens, with increased time and resources required for compliance and regulatory reporting compared to those using transparent, traceable datasets.

Together, traceability, lookthrough, and methodological transparency form the foundation of decision-useful ESG data. Providers that fail on these dimensions expose their clients to reputational risk, greenwashing allegations, and compliance inefficiencies. In contrast, transparent providers unlock trust, customizability, and defensibility, qualities increasingly demanded in a maturing ESG ecosystem.

Trust is the currency of ESG investing. Transparent ESG data builds investor confidence in several ways:

Transparency enables meaningful comparisons across firms, sectors, and regions. It supports informed investment decisions, benchmarking, and trend analysis. Without comparability, ESG investing becomes speculative.

The European Union has identified insufficient transparency in ESG data as a root cause of greenwashing. When data cannot be traced or verified, companies can exploit this opacity to present an exaggerated sustainability profile. Transparent systems expose these discrepancies.

Rising regulatory demands require auditable ESG data. Transparent datasets support compliance and reduce the risk of regulatory penalties. Many asset managers are being forced to expand internal teams just to track and validate ESG data sources, highlighting the growing operational burden tied to poor data transparency.

Read more: Combatting Greenwashing Through Regulations

Transparency isn’t just a regulatory necessity, it’s a competitive edge.

• In a crowded market of conflicting ESG scores, transparency acts as a signal of credibility. Providers who disclose their methodology and data trail are more likely to win trust from institutional investors.
• Transparent data enables users to go beyond headline scores and conduct tailored analysis. Whether for shareholder engagement, impact strategies, or divestment decisions, full access supports deeper insights.
• Cost-saving is another important dimension. As compliance teams expand, opaque systems indirectly increase operational complexity. Transparent providers help contain these costs, aligning sustainability goals with financial efficiency.

The demand for credible, data-driven ESG strategies is louder than ever. Transparency will be essential as ESG investing becomes mainstream. The integrity of data providers, methodologies, and portfolios increasingly depends on their ability to withstand scrutiny.

Investors, regulators, and companies all demand clearer views of sustainability performance. In the absence of transparency, ESG ratings risk losing relevance, creating reputational, legal, and financial risks.

Transparent ESG data is now a strategic necessity, not a luxury. The future of sustainable finance will be shaped by providers who build trust through transparency, traceability, and methodological rigor.

This future isn’t about transparency being a “nice to have.” It’s about it being the key to corporate credibility, market trust, and sustained performance.