LEADERSHIP
N AV I G AT I N G S U S TA I N A B I L I T Y D ATA
Navigating Sustainability Data: Estimation, Extrapolation and Errors
B
Among the prominent threats to the quality of data are the ‘three Es: estimations, extrapolations and errors. In this extract from Navigating Sustainability Data by SHERRY MADERA, she explains more
Businesses rely heavily on sustainability data
amounts of verified raw data to be meaningful or illustrative. If there
to guide decisions, manage risks and meet
are 20 comparable companies in a portfolio, but only two companies
regulatory requirements. However, not all data
have disclosed their methane emissions, an estimated data point for
is created equal. Understanding the common
that portfolio group is not fit for purpose – no matter how similar
pitfalls and limitations of data - particularly in
their underlying businesses are.
the realm of Environmental, Social, and Governance (ESG) reporting - is just as important as recognising its benefits.
EXTRAPOLATION Extrapolation involves using existing data to make predictions about data
ESTIMATION
that has not yet been obtained to make predictions about future events
Estimation is the process of making assumptions about data that is
or trends, based on existing data. For example, if your organisation has
not available, often by using existing data. While this can be a useful
already brought one operation online and is planning on developing
tool, it can also lead to inaccurate results if the assumptions on which
another, similar one in the near future, likely trends for the future
it is based are incorrect, or if contextual factors vary significantly.
operations can be extrapolated from data on the one already initiated.
In relation to ESG data, estimations are often not illustrative
Extrapolation can be useful for predicting future trends, but it is
of reality. This is because even if the data points being used to
necessarily hypothetical, and highly dependent on the assumptions that
create the estimation are from very similar companies in similar
underpin it. In an environment where ESG disclosures are not universally
situations, each organisation could be on a very different energy or
mandated, extrapolation can also take the form of creating a data point
sustainability transition plan.
for a later year based on data disclosed in an earlier period, but which was
Moreover, estimation is most robust when there are many data
left out of disclosures in subsequent reporting windows. Again, this can
points available. ESG data is not yet as complete as we would like it
yield inaccurate results. Making investment or strategic decisions on these
to be. This can – and has – led to estimations based on insufficient
extrapolated data points can be harmful or dangerous.
[32] MARCH/APRIL 2025
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