In a year when headlines focused on political pushback gave the impression that sustainability-focused investment strategies may be in decline, a survey from Bloomberg paints an altogether different picture.
ESG data investment is growing and set to continue growing at least into the next 12 months, the financial data giant’s ESG Data Acquisition and Management Survey concluded.
The survey, published late last week, showed that of the 103 asset managers, private bankers, wealth managers and other executives of institutions, 92 per cent said they plan to increase their ESG data spend by more than 10 per cent. Almost a fifth anticipate increasing their spend by 50 per cent, according to the results of the survey which was carried out in conjunction with Adox Research.
The single-most in demand data product on managers’ shopping lists is ESG benchmarks and indices, which was cited by 24 per cent on respondents. Company reported data was next most in demand at 19 per cent.
ESG Insight asked asset managers as well as the authors of the survey to reflect on the findings and gauge their own data plans.
A-Team Group: Data quality was ranked as the most important criterion for selecting ESG data, ahead of breadth of coverage, cost, ease of integration and support. Why do you think that is?
Leila Sadiq, Global Head of Enterprise Data Content at Bloomberg: “ESG data quality is multi-dimensional and complex. Whether it is incorrect mappings, patchy data or event processing, these are all key issues that need to be checked, fixed, and closely monitored to ensure that analysis and investment decisions are made on sound data. At Bloomberg, we have a global team of ESG data analysts who run 5,000+ sophisticated, multi-layer quality control systems to ensure the quality of our ESG data conforms to the highest standards.”
Benedikt Kirsch, head of sustainability at CHOM Capital, Germany: “I think we are in a key moment right now moving from considering breadth of coverage towards looking at data quality as a key challenge. Given that there are more ESG data vendors as well as more firms having understood that voluntary disclosures of ESG data are much appreciated by investors, chances are high to have some form of coverage on a potential investment.”
A-Team Group: The survey found that cloud databases are the preferred technical delivery option for ESG data, cited by 47 per cent of respondents. What do they like about it?
Don Huff, Global Head of Client Services and Operations at Bloomberg Data Management Services: “Ease of access to ESG data is always a primary concern for customers. They want ESG content that is centralized and linked across the firm to security and price master data, along with the tools to put the content to use quickly. Cloud data warehouses offer high data availability across the entire firm and allow business owners to directly satisfy dynamic business requirements, rather than relying on IT to design specific data deliveries per business line.”
A-Team Group: The survey identified four key challenges in ESG data management: the constant evolution and introduction of new ESG data, management of multiple data feeds, integrating ESG content to existing data and reporting requirements. Do they reflect your experience?
Panagiota Balfousia, head of sustainable business strategy at asset manager Kieger AG: “We too have experienced an increase in spending on ESG data and expect this trend to continue. We observe this, both in terms of volume of ESG data and the number of data providers we use. Having dedicated sustainability experts working together with investment professionals with long-standing experience in sustainable investing allows us to seamlessly integrate the increasing ESG data content. Managing multiple data feeds does have its challenges, but we rely on our dedicated team of IT and operational specialists for a smooth data management.”
Kirsch at CHOM: For us, the current available ESG data sets (ESG ratings, PAI etc.) tend to still be rather backward-looking and give good indication of the current status quo. As investors we are however more interested in future potentials – hence deriving forward looking indicators is a key challenge. This is still a very fragmented, manually intensive landscape, which we are currently trying to cover by deep management interactions and some proprietary KPIs.
**“**Given that regulatory-approved standardized data and clarity is still missing, many vendors strongly differ in terms of methodology, data sets used and first and foremost transparency on how the score/datapoint has been calculated. Moreover, there are still few firms out there that proactively seek a third party to verify their sustainability ambitions (SBTi for instance).”
A-Team Group: Most respondents said they preferred a decentralised approach to acquiring and managing ESG data. A surprisingly large 18 per cent, however, said they took an ad hoc stance. What are the risks of firms taking an ad hoc approach to ESG data management?
Don Huff at Bloomberg: “Every ESG data project begins with a start date and a projected end date. There’s often a miscalculation of time and costs between these two points. ESG data has a much higher rate of change than traditional data, so naturally, it costs more to maintain and reconcile datasets from different vendors. Customers who take an ad hoc approach to ESG data management can often find themselves over-budget and out of resources when it’s time to tackle higher value projects. This is a big factor in the increasing adoption of our DL+ ESG Manager solution, which is a managed service that requires no resources from the customer and can be available in all downstream resources usually within two weeks of request.”
Gert Raeves, Research Director and Founder of Adox Research: “ESG is a hard problem to solve, and to be good at it you need to have started 15 years ago. There are no quick fixes for acquiring the detailed domain expertise needed to build an ESG franchise, which adds value above and beyond what is available from primary data sources. ESG senior leaders typically have an analyst background – they care deeply about the detail and understand how all this imperfect data needs to be managed into use cases and workflows that are often very specific to a firm’s investment process.”
A-Team Group: Expand on your view about the future state of ESG data.
Balfousia at Kieger: “As a boutique organization we don’t see ESG data as a tick-the-box exercise, but rather focus on our areas of excellence, such as the energy transition, sustainable food and healthy living. These are examples where sustainability is a primary driver of investment decisions and where not being confronted with capacity constraints, like large asset managers are routinely faced with, can be very helpful.
“We view emerging regulation on ESG data providers and on sustainability data standards as supportive of greater transparency, consistency and reliability of ESG data in the future. We are optimistic that these developments better enable investors to make sound investment decisions and drive positive impact.”
Raeves at Adox: “Most ESG executives expect that ESG data will be mostly disclosed data in the medium term, which should solve most of the data quality and availability problems. That future state will not actually be super straightforward – the sheer volume and diversity of those disclosed data sets will be very hard to manage without re-engineering technology and research workflows.
“So, the challenge will shift from ESG’s ‘curation and modelling’ focus to more traditional challenges of scale and normalization. At the same time, firms expect ESG analysis to be an integral part of mainstream security analysis, just like financial analysis is today. That requires quite a lot of education, re-imagination and innovation – and firms are looking for blueprints and roadmaps to build that next-generation analytics capability.”
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