After 20 years analysing companies – in roles spanning equity research, venture capital, ESG analysis, and non-profit advocacy – one thing has always stood out to me: good corporate scrutiny takes time, expertise, and independence. Yet it is consistently undervalued.
People naturally want the headline or an easy formula, not the hard yards of in-depth analysis and nuanced conclusions. The market does not always fund the depth of analysis needed to hold companies to account. Contributing to this, regulators have assumed that if information is disclosed it will be analysed, but this is not true.
In short, there is a market failure in the funding and provision of in-depth company analysis – a scrutiny deficit.
The problem is especially acute for sustainability. Disclosure has increased considerably, but the capacity to analyse these disclosures hasn’t kept pace. As a result, superficial ratings and assessments have filled the gap.
This lack of depth has consequences. Simplistic assessments are unable to deal with the complex relationship between sustainability goals and profit. This has led to diverging views on financial materiality, which is fuelling the pushback against sustainable investing.
Unfortunately, current debates on the future of sustainable investing ignore this important issue – how to increase the capacity for in-depth scrutiny. More depth can improve credibility and help bridge diverging views on financial materiality.
Scrutiny can also be a direct route to impact. For many sustainability topics there is a tension with profit that needs to be resolved through regulation. By supporting and funding robust, widely shared analysis, investors can help build the consensus needed to drive policy reform.
Beyond sustainable investing, there is a need to ensure the ecosystem of corporate scrutiny covers all topics that matter to people such as financial prudence, long-term investment and the impact on local jobs. Scrutiny is also needed of private companies as well as listed.
I’m launching Scrutiny Hub to write research on how the corporate scrutiny ecosystem is functioning and to advocate for more focus on the capacity for in-depth analysis. I’ll test early-stage tools where possible and, if there’s demand, seek funding to scale them.
If you are interested, then please subscribe to the newsletter for updates or get in touch to discuss.
