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Vendor Strategy: Acuity Knowledge Partners Braces for Growth of ESG Business

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Acuity Knowledge Partners has enabled its financial services clients to achieve more than US$3 billion in savings by providing research and analytics services that has streamlined their enterprise workflows and processes. The UK-headquartered company is now rapidly expanding its operations to do the same for those clients’ ESG reporting and management obligations.

The data and analytics company has seen its ESG activities surge in the past two years alone, and now about 10 per cent of its 400-plus clients have engaged Acuity Knowledge Partners to manage their ESG processes. Chief Revenue and Marketing Officer Damian Burleigh expects that proportion to grow quickly over the coming years.

“Last year, particularly, our ESG business went from being wholly asset management-focused to a situation where we’ve seen ESG teams formed in investment banks,” Burleigh told ESG Insight. “We are certainly seeing a vast change in asset managers that must have the right ESG credentials to win mandates.

“And we were seeing – and I think this will happen more and more – ESG moving into private equity and private credit.”

In the two decades that Acuity Knowledge Partners has been operating, it has opened offices all over the world and built up a roster of analysts and data scientists that now numbers 4,500. Almost half of them were hired since 2020. The company manages the data and analysis operations of financial institutions involved in a range of activities, from banking and asset management to private equity, commercial lending and investment research.

Through a range of products and services, Acuity Knowledge Partners provides the technology and expertise to solve a battery of data and research requirements for its clients. Among them it offers portfolio management tools, regulatory filing services, consultancy databases and various automation solutions.

“We’re taking the pain out of the analytics for the client and trying to make something that’s a lot more repeatable for them,” he said.

Burleigh says that such has been the growth of demand for research and interrogation of sustainability data that ESG “is now part of almost everything that we do”.

Cleaning up

Like all data managers in the space, much of Acuity Knowledge Partners’s energies go into making the diverse range of ESG data formats useable and comparable for financial institutions. Reported information is often incomplete, unstructured and in need of validation and mastering. The growing number of data providers also adds complexity to the process of creating consistency in data that enables it to be used in a “cookie cutter” manner across applications.

Acuity Knowledge Partners addresses these issues before mapping the cleaned data to issuers and their financial products, then applies sophisticated analytical tools to create models and indexes that offer visibility into portfolios’ ESG performances.

While the process of standardisation is common to all data management, it needs to go further for ESG information, which may be taken from alternative sources such as images, videos, audio files or satellite imagery and can’t be easily ingested into workflows in its raw form. The exercise is an iterative one too, Burleigh says, because the nature of ESG data is always evolving.

He warns, however, that too much processing runs the risk of taking the nuance out of the data.

“The first few stages are critical before you can consider starting to provide that analytical insight, but one of the things with this technology is that if you ask it to search too intently and it’s highly filtered, it can then miss the actual goal that you’re looking for,” Burleigh says. “You have to be careful because as you’re trying to look for the gold, you could sift it out very easily.”

Burleigh hasn’t been surprised by the growth in the number of companies providing ESG data. They’re giving consumers in the financial sector greater choice and greater ability to fill the holes that notoriously pepper the data space.

But he argues that has generated unintended problems too. With so many organisations trying to win share in the market, companies that need the data are finding the choice bewildering. Given the meaningful cost pressures they are facing, companies needing ESG data may want to additionally consider cost and flexibility associated with ESG data and service providers.

“There are so many people doing ESG today – whether it’s data collection, or some form of analytics, it’s almost making it harder for customers to do their ESG frameworks and their analytics,” Burleigh says. “All of those vendors will have a different methodology, slightly different framework for data and they’ll all say they’re best in class.

“But you’re left then with the financial services firms asking what they want their framework and methodology to be and then where do they go further and add value and go deeper?

“That’s where we help – we augment the organisation, how they’re trying to get to that best-in-class position, assisting them with those analytics and research.”

Regulatory expansion

While the ESG focus has largely been on Europe in the past, Burleigh sees greater emphasis shifting to the rest of the world as other jurisdictions begin grappling with regulating financial institutions’ sustainability activities.

The US regulator, the Securities and Exchange Commission (SEC), ended years of speculation last month when it said it would require companies listed on American exchanges to begin reporting their climate risks and impacts. The UK’s Financial Conduct Authority (FCA) also recently made clear its expectations for ESG disclosures among the companies it regulates.

With regulations already enacted in European Union, many observers expect that the open commitment of the three biggest financial overseers to ESG reporting will galvanise other rules setters to follow suit. That will add pressure on companies like Acuity Knowledge Partners to ensure the data is there to meet the new compliance demands.

“Regulation will come in the US. How quickly, I don’t know – it could still take two to five years, it could be a longer gestation than that – but I do think that there’ll be a clamour for more consistency” in the data, he said.

“ESG has reached a level where even the US is extremely focused on this. We will see a lot more organisations outside of Europe taking this forward.”

Acuity Knowledge Partners is expanding to meet rapid growth in its key markets. Among the 2,000 analysts hired in the past couple of years, many have worked in ESG and the company has hired a sustainability specialist to head up an ESG Centre of Excellence that it has built into its research department.

The work required is likely to become more complex over time, Burleigh predicts, as corporates that report ESG data begin doing so on a more detailed basis. Now, he says, clients aren’t asking for forensic examination of their data. What he calls requests for high-level research has so far excluded the deep interrogation that will eventually be required by regulators. As an example, when reporting their own ESG impact assessments, some companies aren’t including those of their investee companies or suppliers, as will soon be expected under European law.

“ESG means something different to every organisation, frankly,” he says. “At the moment there isn’t one regulatory approach out there. Until there is you will not see a distinct change.”

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