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At Schroders, where we invest in tens of thousands of companies, we think about sustainability reporting in two layers. First, we look for the hard data points that allow us to make a fairly coarse comparison across different businesses. We’re looking for red flags, anomalies and outliers. Does a company have a particularly high carbon footprint? Are injury rates high relative to its peers or previous years? Has something materially changed?

Then we focus more closely on the individual company, looking beyond the data to the broader context. How does sustainability connect to corporate strategy? What does the information tell us about how the company is being run, what it is trying to achieve and the role of sustainability in that?

When I read a sustainability report, I start at the back and work forwards. The hard evidence and comparable data tend to sit towards the back. Once we understand what the numbers are telling us, we can move into the narrative to understand where those results came from, what actions the company has taken and what it intends to do differently in the future.

When I started working in this field 20 years ago, there was very little sustainability data available, so our analysis was largely constrained by what companies chose to provide. That has turned on its head. Mandatory disclosure has significantly increased the volume and standardization of information available, allowing us to start with what we want to understand about a business and then find the information to assess it.

I think about it in a similar way to financial reporting. Companies don't decide which financial datapoints they want to report each year. There’s a consistent set of standardized, robust information that investors can use to reach their own conclusions. We're getting closer to that with sustainability. We're not all the way there yet, but we're moving closer.

At the same time, not all mandatory disclosures are equally useful. Where questions can be answered with legal boilerplate, they often add little to our understanding. Greater scrutiny can also cause companies to retreat towards the safest language rather than honestly articulating what they are trying to do and how they are approaching a problem. Companies can end up spending a disproportionate amount of time debating whether to say something “could” or “might” rather than “will” happen, for example, while losing real communication power.

At the same time, we need to be thoughtful about what information we ask companies to provide. As investors, we will always say we'd like more, but producing information is time-consuming and costly for companies. We need to focus on what we’re actually going to use.

I think about company communications in three broad areas. First, there are the set-piece communications. These have typically been through significant scrutiny and legal review and represent a considered, albeit often sanitized, articulation of the company's position.

Second, there are ad hoc communications – what executives and management say, and also what companies do. Actions are a form of communication. A material change in capital allocation, governance, targets or participation in an industry initiative may send a signal that investors will want to understand. We'll consider what that action tells us about the company and its direction.

Third, there is information that doesn't come from the company at all, such as controversies reported in the media, concerns raised by local communities or regulatory investigations.

We try to put all the information together. If the position articulated in a company's formal reporting is at odds with its actions, or with what we're hearing from other stakeholders, that can start to undermine the credibility of the company's communications.

Ideally, we need both comparability and company-specific insight. Standardized measures allow us to compare companies, but we also want to understand what a company is doing differently and whether there is real commitment to action within the organization.

We start with what we want to know about a business, rather than the data a company gives us and how we can turn it into a result. You have to start with the logic and then use the data to apply that logic – not start with the data and ask how you can turn it into a score.

That’s partly why we don't rely heavily on standard third-party ESG ratings as the primary basis for our conclusions. We want greater standardization and comparability, but that doesn't mean investors should all reach the same conclusions. We develop our own assessments around the questions we're trying to answer. For example, we might assess the social and environmental externalities generated by a company's business model that aren't captured in its financial statements as a way of understanding potential risk.

There are also important gaps in the current information. Climate data is now relatively well reported, but other significant areas – including human capital management and emerging issues such as AI risk management – remain much less developed.

Sustainability is one of many considerations when we make an investment decision. If we're deciding whether to invest in company A, B or C within the same industry, we're looking at valuation, confidence in the management team and the macroeconomic environment. We're also trying to understand the durability and sustainability of the company.

You might have two companies with similar valuations and financial performance. One is achieving that profitability while paying its workers and suppliers appropriately and managing its supply chain sustainably. Another may be generating similar results by underpaying workers, squeezing suppliers or creating environmental costs that it isn't currently paying for. Those companies might look similar on conventional financial measures, but the second is potentially a much more vulnerable investment.

Sustainability isn't binary. It’s not a case of buying a company if it's “good” and not buying it if it's “bad”. It's part of understanding the overall investment case and what might make a company more successful – or more vulnerable – in future.

Sustainability reporting is one source of information within that analysis, alongside company conversations, external information and our own views about how the world is changing. Together, these form part of a mosaic that ultimately informs an investment decision.

I think AI is going to fundamentally change the way we think about sustainability reporting. It makes it much easier to extract information and transform it into whatever form we need for our analysis.

Take AI risk management itself. There isn't yet a standardized dataset, but we know the questions we want to answer around governance, incentives, risk frameworks and employee training. AI can extract that information across a very large number of companies and allow us to create our own analysis.

I also think AI should make it easier to sift lengthy or formulaic disclosure and identify the substantive commitments and evidence beneath it. Where reporting uses long or convoluted language to convey a position without necessarily committing to it, AI can help distill that into something more tangible: does the company have a particular policy, process or governance mechanism in place, or not? That could make it harder for companies to create an impression without demonstrating how its stated approach is actually being implemented. Having said that, in the end, human engagement, understanding and judgement will remain important and potentially more so in a world where data becomes easier and cheaper to generate.

I would start with a foundation of consistent, widely accepted reporting measures such as ISSB, SASB and GRI. That provides the standardized information investors need to compare companies.

From there, explain succinctly and thoughtfully how sustainability relates to your business strategy. Start with the strategy itself, then explain where you're performing today and what you're trying to change in the future. Keep it clear, simple and digestible rather than becoming too focused on finding precisely the right wording.

It’s also important to give an organization-wide picture of how you're driving change. Case studies provide useful evidence and bring the story to life, but they're inevitably examples of things that have gone well. They're valuable, but think of them as the cream, not the sponge cake.