ESG data is now core to banks’ and financial institutions’ operations, their compliance and risk processes and the products they offer investors. For that reason, it’s crucial that this data be managed properly and treated in the same way as other datasets.
Without good data management, banks can be left commercially and legally exposed, vulnerable to regulatory censure and competitively disadvantaged. It will also hamper their operations by making data distribution and access difficult.The growing importance of good management of ESG data was highlighted in A-Team ESG Insight’s latest webinar, in which leading market participants explained how banks were being forced to get this right to meet the stringent demands of sustainable finance investors and regulators who are determined to provide a level playing field for them.
The rise of the informed investor was the most important driver of growth in the ESG space, argued Ben Corris, head of ESG models at Schroders. Corris told the Keys to ESG Data Management Success webinar that asset managers would be failing their clients and markets if they didn’t respond to the growing clamour for sustainable products and services.Rinesh Patel, global head of financial services at cloud-focused data technology company Snowflake, agreed that investor demand was fuelling the industry and that regulators’ responses were adding impetus. Patel said that purpose and ethical standards were now important to inventors who increasingly want to bring change for good through their investments.
To put investor intentions into concrete action, however, requires financial institutions to use good quality ESG data. It also requires they effectively incorporate that data into their operations, their investor research models, risk management strategies and compliance processes. This is not an easy task, the speakers said.
For a start, ESG data quality is, in most cases, a trailing a long way behind that of other datasets used by banks. Matthew Mernagh, head of ESG data at Deutsche Bank, began a lengthy debate on the challenges to obtaining the right data in the first place. While improvements had been made among corporate entities to better report their ESG performance, there are still many gaps in the data record that banks must fill, usually through the use of proxies and estimates.
Remediating that is made no easier by the patchiness of coverage by individual data vendors, the panel agreed. With no single company able to provide all the data needed to take a panoramic view of a topic as broad as ESG, banks must engage with a multitude of vendors. This brings with it a host of other challenges, both financial and operational.
For instance, Mernagh said that data licensing agreements varied with vendors and can have an impact on which teams and individuals within an organisation are able to access it. That requires banks to embark on an in-depth examination of exactly what data they need, how they will use it and who can provide it – neither of which are quick or cheap to execute.
Patel pointed to the difficulty in blending datasets provided by different vendors who sell content in a variety of forms. To overcome the deficiencies of this fragmentation, banks must pay additional attention to other data quality attributes, such as lineage, he added.
The data vendor community, said Mernagh, is struggling to keep pace with demand for good-quality ESG data and as a result, data consumers are having to carry out a lot of costly manual cleansing and normalising work before ingesting it into their systems.
The changing demands of regulators are adding another layer of complexity to the ESG data management question. With oversight rules regularly updated and a lack of joined-up thinking across jurisdictions, financial institutions face difficulties in knowing what data to ingest and for what use.
Corris, for instance, highlighted how European regulations’ “sequencing is out of order”, with overseers demanding data from asset managers that can only be obtained from corporates who, conversely, are under so such obligation.
The fragmented global regulatory landscape is also a worry, he said, but was hopeful that the fact overseers were so active was a sign that greater transparency into corporate ESG performance is on its way.
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