ESG is driving innovation in data management processes as growing customer and regulatory demand for high-quality sustainability capabilities pressure financial institutions to adapt.
The large volumes of information that organisations need to fulfil their sustainability mandates and to comply with emerging regulations has forced data scientists to devise new ways to manage their content. Furthermore, the constantly expanding sources and complexity of ESG data has made it almost impossible for organisations to rely on their own talents to build management structures.
The extent of the challenge posed by the peculiar characteristics of ESG data was reflected in European research this week that showed two-fifths of respondents consider the rapid changes in the datasets as their top ESG management concern. The survey, by Bloomberg, which also found that the quality of ESG data was cited as the main challenge by two-thirds of the 200 respondents, underlined that the importance of ESG to data managers cannot be underestimated. Its’s a statement that chimes with Andrew Sexton, sales and marketing director at UK-based Curium Data Systems.
“ESG is a driver for innovation in data management processes and technology because you have to make sure you can do this at scale and as automated as you possibly can,” Sexton told ESG Insight. “ESG accentuates all the aspects of data management.”
Expanding Universe
Curium creates bespoke data solutions for its financial institution customers based on a range of EDM, data quality and business intelligence products. The latest addition to its roster is Danish pension and insurance company Velliv, for which Curium has configured its CuriumEDM solution to manage ESG data and processes.
Initially Curium will provide its expertise and technology to manage the ingestion, aggregation, mastering and quality control of Velliv’s ESG data. Further capabilities are likely to be added into the service later.
Velliv took on a third-party EDM provider because it “realised some time ago that our expanding universe of ESG data sources would necessitate a new data management approach around how we ingest and work with these data sets prior to that data entering our main portfolio and accounting systems”, said Kasper Moller Deleuran, head of the company’s middle office.
CSRD Impetus
Bloomberg’s European ESG Data Trends Survey, conducted in September, found that the single-largest ESG data priority for respondents was to comply with regulations (35 per cent), followed by finding climate risk and net zero solutions (18 per cent). The findings are likely to reflect companies’ efforts to put systems in place to manage the impact of the introduction of the Corporate Sustainability Reporting Directive (CSRD), which came into force in January.
The CSRD will affect financial institutions because, as the EU’s centrepiece law for non-financial company ESG reporting, it’s expected to bring in a torrent of data from around 50,000 companies.
Issuer Challenge
Velliv’s experience is a good example of how institutions are recognising how critical ESG data is to their operations, said Mat King, head of professional services at Curium.
In particular, he said, companies are being forced – often for the first time to manage issuer-level data. While constantly evolving and new content was the leading ESG data management challenge in the Bloomberg survey (41 per cent), 25 per cent said that linking ESG data to existing entity and instrument data was their toughest task.
King said that institutions had so far only had to deal with security-level data. But the challenge now is to match that data to issuers, a task that requires an understanding of corporate hierarchies and other factors that many EDM systems aren’t configured to manage.
“Certainly, for asset owners and asset managers this is a much newer sort of concept and it’s a bit of a grey area for them,” King told ESG Insight. “There are some industry standard identifies, such as the Legal Entity Identifiers, but from what we’ve seen, they’re not always reliable.”
He said that not all market data vendors include the metadata needed to match issuer and instrument data sets and that this adds a new complexity to data mastering. For ESG investors, this mapping is critical, especially for impact investors who want to know that the ultimate issuer of an apparently sustainable asset is not an organisation that is included in exclusion screens.
“You don’t see quite that need when you’re looking just at the security-level of data,” King said. “It’s an interesting shift both in terms of the new process challenges this brings and people’s understanding of the ESG data landscape.”
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