Mark to Target Information : Idiosyncratic Forward-looking Information and its Use to Define Primary ESG Indicators

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