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Mark to Target Information: idiosyncratic forward-looking information and its use to define primary ESG indicators

Author

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  • Andrea Giacomelli

    (Department of Economics, Ca' Foscari University of Venice; KnowShape, Italy)

Abstract

Forward-looking information is taking on an increasingly important role in firms' decision-making processes, in communicating with stakeholders and in improving market information. Its relevance is also increased due to recent structural breaks, namely the Covid-19 pandemic and the Ukrainian war, which make historical data uninformative. In the last period forward-looking information has been the object of different international regulations for firms and financial institutions and its scope has expanded from financial performance to ESG sustainability performance. Despite its relevance, forward-looking information is still a confusing topic, in terms of contents and applications, especially in the context of ESG, where there is a need for greater clarity and standardization of the definitions of the ESG indicators. To address these issues, this paper introduces two contributions. The first one is an analytical definition of idiosyncratic forward-looking information, called Mark to Target Information (MtTI), which is suitable for representing both the financial and the ESG sustainability performance. MtTI refers directly to firms' plans and their risk indicators, thus differing from forecasts and systematic forward-looking information (based only on macroeconomic or sector scenarios). The second contribution is the introduction of formal criteria for identifying, within the general definition of MtTI, a list of primary ESG indicators which must be considered for the establishment of ESG information standards. These indicators are called "MtTI-based ESG indicators" and they refer directly to a firm's ESG sustainability plan and its risk indicators.

Suggested Citation

  • Andrea Giacomelli, 2022. "Mark to Target Information: idiosyncratic forward-looking information and its use to define primary ESG indicators," Working Papers 2022:08, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2022:08
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Forward looking information; idiosyncratic information; enterprise risk management; expert judgment; ESG information; ESG risk; ESG sustainability disclosure; ESG transition plan;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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