Information asymmetry refers to the economic and contract theory of transactions in which one party has an advantage of more or better quality information over the other. This idea is simple yet enduring: it was once believed that all economic transactions would feature some degree of asymmetry between parties. However, this belief is swiftly being shaken by the recent movement for more transparency in business and government, manifested in the rise of ESG reporting.
ESG (Environmental, Social, and Governance) reporting has seen a steady rise since 2005, when the United Nations launched an initiative to integrate ESG reports into capital markets with the help of 50 of the world’s largest financial institutions. ESG reports were introduced as a more whole-balanced approach to business reporting practices. Rather than comparatively one-dimensional financial reports, ESG reports use non-financial information to deliver fuller pictures of businesses beyond their bottom lines, creating healthier, more sustainable business practices and information symmetry.
Like it’s name suggests, information symmetry involves an equal, balanced distribution of information in business transactions. With more in-depth reporting of environmental, social, and governance practices, the age-old imbalances in information are gradually becoming a thing of the past.
