Investors interested in ESG face a major obstacle:  lack of disclosure.  The Transparency Label Initiative solves the problem of how to get companies to voluntarily provide this disclosure.

ESG disclosure requires a starting point.  The Suitable Accounting Standards Board (SASB) has laid out metrics for each industry for what should be disclosed.

Naturally, companies are reluctant to make these disclosures.  This is particularly true if doing so reflects negatively on the company.

This is where the Transparency Label Initiative comes in.  The failure to comply with the SASB standards is a clear indication the company’s disclosure are not adequate for an investor to know what they own.  As a result, the company would not qualify for a label from the Initiative.

This has implications for a company’s cost of funding and its share price.

As regular readers know, the Initiative’s label turns opacity into an asset class.  Investors can now choose how much or how little exposure they want to opaque investments.  In addition, when blindly betting on opaque securities, investors know the valuation story told about the opaque security should suggest a very high return to compensate for the likely loss of some or all of the investment.

Companies face the decision of remaining opaque and paying a higher cost for funding/having a lower share price or providing the necessary disclosure and having a lower cost of funding/higher share price.  There is a competitive advantage to providing transparency.