The market doesn’t want ESG claims that cannot be verified. Without reliable supporting data, companies struggle to build the trust regulators, business partners, and investors expect.
Contributor disclosure: Stanislav Kazanov is Head of GRC, Cybersecurity & Sustainability at Innowise. The article discusses the company’s experience and an Innowise-reported project; the views expressed are the author’s.
According to Morgan Stanley’s March 2026 analysis of Morningstar data, global sustainable fund assets reached $4.13 trillion at the end of 2025, despite net outflows of $62.8 billion during the year. Sustainable funds’ share of total global fund assets declined to 6.5%. The figures point to an increasingly selective market shaped by reallocations, regulatory uncertainty, anti-ESG sentiment and mixed fund performance. Traditional funds, by contrast, recorded net inflows in every quarter. Even when capital is available, investors want more transparency about the sources, methods and controls behind ESG data.
At Innowise, we see the same pressure inside business operations. ESG used to be largely about maintaining a positive image through marketing and communications. Now it is more about financial pragmatism. Investors, banks, customers, and regulators want to know where a figure came from, who owns it, how it was checked, and whether the company can defend the claim. Everything has to be clearly defined and defensible.
That higher burden of proof is reflected in Europe’sCorporate Sustainability Reporting Directive (CSRD), with its focus on double materiality and limited assurance, and in the ISSB’s IFRS sustainability disclosure standards S1 and S2. Following the EU’s 2026 Omnibus I reforms, the CSRD applies to a narrower range of companies, with simplified reporting requirements. Organisations remaining within its scope must comply with applicable materiality, reporting and assurance obligations. Exact requirements depend on the company’s jurisdiction, size and reporting status. Beyond compliance, traceable ESG data, clear ownership and supporting evidence can strengthen funding discussions and risk reviews.
Capital Pricing and Funding Now Reflect ESG Ratings
MSCI research covering more than 4,300 issuers found a historical association between stronger ESG ratings and lower weighted-average cost of capital (WACC). Companies in the highest-rated quintile had average WACC of 6.8%, compared with 7.9% for those in the lowest quintile. This 110-basis-point difference is an association, not proof that a better ESG rating independently causes lower financing costs.
The WACC gap may reflect investors’ assessment of the broader risk profile behind a rating, including governance quality, climate exposure, workforce risk, supplier controls, management accountability and disclosure quality. Sector and other financial characteristics can also influence financing costs.
While the sustainable finance market remains large, it has become significantly more selective. Net outflows and tougher scrutiny send the message that ESG capital is still present, but comes with greater demands for evidence and controls.
This funding shift is prompting companies to reframe how ESG data is collected and consolidated. Data that sits across finance, HR, procurement, EHS, IT, energy bills, supplier records, spreadsheets, and local teams can no longer remain siloed. These sources must be connected so leaders have direct access to data that is ready for review. Otherwise, companies may struggle to identify where the evidence is weak or incomplete.
ESG Now Affects the Operating Budget
The practical application of ESG is easier to see in operations. Innowise describes a logistics optimisation project for a global provider seeking to reduce delivery emissions without slowing shipments. The provider’s challenge was to improve routing efficiency while addressing avoidable fuel use, delays, inadequate emissions tracking and reliance on manual decisions.
According to Innowise, its team built an AI routing platform using machine learning and live geospatial, traffic, terrain and weather data to recalculate delivery routes in real time. The platform calculated real-time Scope 1 and Scope 3 emissions using the GHG Protocol and GLEC frameworks, creating traceable data for GRI reporting and the company’s ISO 14001 environmental management processes.
Innowise reports that within the first year, the provider reduced fuel consumption by 15% and delivery-related emissions by 20%, while improving delivery speed by 30%.
For CFOs, this is where ESG becomes measurable in operating terms. A lower-emission route can also be a lower-cost route. The same data supports cleaner reporting while improving visibility into fuel spend, delivery times, and planning accuracy. In other words, ESG becomes a business result.
Investors don’t give credit for ESG targets alone anymore. They ask whether figures can be traced back to source systems with an unbroken audit trail. In 2026, assurance-ready ESG data can be increasingly important alongside financial data in funding talks, risk reviews, and operating decisions.
Looking Beyond the “E” in ESG Performance Metrics
The financial logic of ESG extends beyond environmental concerns. Social and governance factors can affect productivity, retention, risk and stability. In Gallup’s 2024 Q12 meta-analysis (11th edition), business units in the top quartile for employee engagement showed a median 23% higher profitability and 78% lower absenteeism than those in the bottom quartile.
These findings show an association with employee engagement; they do not establish that ESG programmes alone caused the differences.
Executives can treat the social aspect of ESG as a management issue, focusing on workforce safety, engagement, fair treatment, retention, and training — all of which can affect costs and the company’s ability to deliver. This ties social performance to revenue, profit margins, and operational risk.
Governance raises a related issue of trust and control. When ESG data is spread across departments and files, a company can’t present clear information to regulators and decision-makers. There may be confusion over what decision was made, who authorized it, and why. These problems can result from weak access controls, data silos, or public statements that move ahead of internal reviews, increasing the risk of greenwashing.
To address these issues, a company should implement a workable ownership model. That will give every ESG metric a clear owner and a place within normal business controls, such as finance managing reporting checks, procurement managing supplier information, HR managing workforce metrics, and IT managing access and data quality. Legal and risk teams can then review potential exposure, current policies, and any public claims. These controls should operate throughout the year, rather than becoming part of an annual reconciliation exercise without clear ownership.
The Standard for ESG Data Has Changed
ESG is no longer primarily a communications issue. When investors, customers, banks, rating agencies, regulators, and procurement teams ask for numbers, they want data they can trace, check, and defend. This shifts ESG from communication to daily operations.
Companies now need accurate data across finance, HR, procurement, EHS, IT, energy bills, supplier records, product files, and local teams. These sources must be connected so reporting is faster, supplier requests don’t repeat, and tender responses don’t slow down. Connected data also makes public claims easier to support.
A company can implement these changes by starting with the pressure already in front of it, such as a customer tender, investor inquiry, supplier request, reporting deadline, emissions target, audit issue, or product claim. Meeting these demands with supported data, clear data lineage, and traceable, controlled audit trails from the IoT edge or ERP source to the final disclosure builds trust. It also helps companies show who owns the data, who reviewed it, what changed, and what evidence supports each claim.
ESG data has business value beyond marketing. It gives leaders greater visibility into risk, costs, supplier exposure, reporting gaps, and readiness for future funding talks. Companies that view ESG through the same lens as financial data are better positioned to turn sustainability work into measurable value.
About the Author
Stanislav Kazanov is Head of GRC, Cybersecurity & Sustainability at Innowise. He helps organizations build secure, compliant, and resilient technology environments by navigating regulations such as NIS2, DORA, and GDPR, securing AI ecosystems, and turning ESG requirements into practical sustainability initiatives, including Scope 3 supply chain decarbonization. His expertise spans governance, risk and compliance, cybersecurity strategy, data engineering, secure system architecture, and sustainability governance. With a background as a Senior Data Architect and Engineer, Stanislav bridges high-level risk and compliance strategy with scalable technical execution.
References
Morgan Stanley, sustainable funds 2025: https://www.morganstanley.com/insights/articles/sustainable-fund-performance-second-half-2025
MSCI, ESG ratings and cost of capital: https://www.msci.com/research-and-insights/paper/msci-esg-ratings-and-cost-of-capital
European Commission, corporate sustainability reporting: https://finance.ec.europa.eu/financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
Gallup, Q12 Meta-Analysis: 11th Edition (2024): https://www.gallup.com/file/workplace/321725/Q12%202024%20Q12%20Meta-Analysis.pdf
