A growing body of research is reinforcing a long-argued weakness in ESG assessment: companies are not always judged on what they do, but on how well they disclose it.
The issue is particularly acute for firms that may be making genuine progress on sustainability, but whose efforts are buried in unstructured documents, internal reporting or qualitative descriptions that automated rating systems struggle to interpret. In practice, that means strong environmental or social perform...
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ance can be missed if it is not presented in a format that ESG raters can readily process.
According to the article by ESG.ai, this creates a paradox in which businesses with robust climate, workforce or governance programmes can end up with mediocre scores simply because their achievements are not visible to the systems doing the scoring. That problem is not just anecdotal. A recent ScienceDirect study examining STOXX 600 firms developed a framework to detect potential ESG-washing and underreporting by comparing performance scores with disclosure scores, finding that the gap between the two can reveal companies that are either overstating or underselling their sustainability credentials.
Other academic work points in the same direction. A paper published on ScienceDirect introduced ESGReveal, a framework that uses large language model techniques to extract structured information from ESG reports, reflecting the growing recognition that much of the most valuable sustainability data is trapped in free text rather than machine-readable tables. The research suggests that AI could help close the gap between what companies are doing and what ratings agencies are able to capture.
The problem is compounded by broader data-quality weaknesses across the ESG market. Analysis from ESG Hub and the OECD notes that disclosure coverage remains uneven across companies, sectors and geographies, while inconsistent methodologies, incomplete reporting and limited assurance continue to undermine comparability. A separate SSRN paper on rating divergence found that differences between major ESG providers stem not only from weighting choices, but also from the scope and measurement of the underlying data itself.
For companies trying to improve their standing, the practical lesson is clear: performance alone is no longer enough. Firms need to align their disclosures with the frameworks used by ratings providers, whether that means CSRD, GRI or SASB, and ensure that key metrics such as emissions, diversity, supply chain resilience and board oversight are reported in structured, accessible form.
That is where disclosure strategy becomes a competitive issue as well as a compliance one. The more visible and standardised the data, the more likely it is to be reflected in a rating. And as the market becomes increasingly data-driven, the question for companies is shifting from whether they are making progress to whether anyone outside the organisation can actually see it.
Source: Noah Wire Services
