How Nasdaq is using data to enhance ESG disclosure in capital markets

The Sustainable MBA

How Nasdaq is using data to enhance ESG disclosure in capital markets

Evan Harvey, sustainability at NasDaq, in front of a stock exchange board
Evan Harvey is global head of sustainability at Nasdaq, the company behind the stock market index of the common stocks and securities.

Nasdaq has promoted corporate responsibility for over a decade, playing its part in creating a more efficient and sustainable capital market system. Today, Nasdaq Global Head of Sustainability Evan Harvey and his team are at a nexus of companies, regulators and investors working to enhance environmental, social and governance (ESG) disclosure.

Since 2014, the cost of ESG-related scandals and controversies at S&P 500 companies has amounted to $534 million losses in market capitalizations — and that number is rising. After California power company PG&E’s recent bankruptcy filing and subsequent stock market plunge, forecasted outages due to risk of wildfires could cost the state economy more than $2 billion

ESG is a data-driven attempt to understand long-term performance, and Nasdaq has co-authored reports that assist companies in identifying and disclosing ESG-related factors that are material to corporate performance, as well as addressing the gap in quality, reliable ESG data. Nasdaq is reminding capital players that the growth, transparency and standardization of ESG reporting will improve market efficiency.

MBA student Roxi Sharif spoke with Nasdaq’s Evan Harvey about how materiality can help manage ESG data and about SDG investing and reporting.

Roxi Sharif: Tell us a bit about your role at Nasdaq and your team’s Work in the ESG space.

Evan Harvey: My role technically is global head of sustainability, which is an internal and external role. On the internal side, it’s everything that we’ve been doing to improve our own environmental, social and governance profile and performance as a public company. Although we’re a stock exchange, we’re a public company with investors and other stakeholders, so we try to perform as efficiently and responsibly as any other well-run company.

Increasingly, because we have a prominent position in the market as a listing venue for thousands of public companies, we’ve been working with those companies and other stock exchanges to figure out what the right disclosure paradigm for ESG is. What do investors and other stakeholders need to know in order to evaluate companies properly?

The bulk of my work over the last five years has been really focused on that marketplace effort to understand ESG data impact on market valuation and how stakeholders integrate it into their thinking. 

Sharif: One of the things we talk about in the ESG space is the volume of data. What’s the role of materiality in helping to manage that?

Harvey: It’s a sea of data signals. ESG can mean almost anything that’s not in a financial report. Every environment, social, and governance data point tends to be lumped into the ESG category over time — everything from carbon emissions and water responsibility, to gender diversity on boards, to inclusion of differently and disabled persons, to the way your board voting is published. The Bloomberg terminal, which is sort of the archive of record, has 150 or 200 ESG-related data points. 

It can quickly get overwhelming for companies and investors. Materiality is the focusing mechanism for that, especially for companies. In the materiality process, you interview people who impact your business. These could be investors, employees, executives, communities — anyone who has an impact on your business — and you figure out what’s important to the company.

Then you sort that list of ESG signals into the top 10 or 20 that have importance inside and outside the company. The materiality process makes it easier for companies to not only understand what’s important but also to attack and improve those data points. 

Sharif: How does a company demonstrate its long-term strategy for creating and protecting its market value?

Harvey: A lot of this decision making traditionally was behind the scenes. Even if a company was behaving responsibly or even progressively, it didn’t really tell the public and investors about it. So investors would force through engagement and other processes to try to learn how a company was operating. 

There’s a more enlightened attitude now in investor relations and in legal departments. Especially in the U.S., companies talk more publicly about how they operate and how they’re taking into account things that have an existential impact on the business, such as climate change and social dynamics. I think that’s No. 1.

No. 2 is that they’re attracting more business than they’re pushing away with their point of view. The prevailing attitude for a long time was that you disclosed the bare minimum, which is very little in terms of ESG, especially in the U.S. By and large, companies have found more business and more employees with progressive attitudes and transparency about ESG than they’ve ever pushed away stakeholders who were turned off by the idea. 

Sharif: Is there more innovation to come in terms of the development of frameworks and processes, or methods and metrics, to help to map corporations’ progress towards achieving the SDGs?

Harvey: I think it’s a problem frankly. The SDGs have attracted a lot of intellectual interest but not a lot of action in reporting and certainly not nearly the investment that they would require to accomplish.

GRI and other frameworks have connected their standards to progress on the SDGs. If a company is reporting to GRI, you can look at the concordance and figure out how that’s driving progress on the SDGs.

Not all of the reporting frameworks have done so, however, and my concern is not that the SDGs haven’t inspired businesses and others around the world to collectively work together to fix some of these problems, but that we still have very little evidence that companies are investing in and reporting on SDG-specific targets.

This Q&A is an edited excerpt from the Bard MBA’s Nov. 1 The Impact Report podcast. The Impact Report brings together students and faculty in Bard’s MBA in Sustainability program with leaders in business, sustainability and social entrepreneurship.