Element 22’s ESG data product is among the newest in the industry. Launched in March, ESGi provides buy-side firms with a unique means of connecting directly with corporates to gain insights into their ESG credentials.
It didn’t take long for this innovative approach to data gathering to attract high-profile attention. Within just a few months of ESGi’s creation, the Investment Association accepted the service into its fintech accelerator programme, called Engine.
Inclusion in the accelerator has the potential to prove a huge boost to Element 22’s nascent ESG product, offering access to the association’s more-than 200 investment-community members and providing mentorship and expert advice from leading technologists.
“What that means is we have access to the asset management members of the Investment Association to share information or solutions, but also to get great feedback on what works, what doesn’t and to help us refine and improve or product,” Element 22 partner Mark Davies tells ESG Insight.
A ‘Disruptor’
UK-based Element 22 provides data advice to financial firms the world over. But ESGi is its first product dedicated entirely to gathering environment, social and governance information. Early feedback is going to be key to ESGi’s development as it strives to reshape the ESG data space using technology that’s also still in the early stages of development, Davies adds.
“We see ESGi as a disruptor, we see it as an opportunity to fix what’s essentially a broken end-to end supply chain for ESG information,” he says. “So we focused ESGi in the first instance this year on SFDR, solving the data points that asset managers need in order to be compliant with their disclosures.”
The implementation of the European Union’s Sustainable Finance Disclosure Regulation (SFDR) made it necessary to create a new way to gather ESG data, Davies says.
Built in conjunction with distributed ledger developer Agility Sciences, ESGi offers its clients data in real time. Element 22 says the product addresses time lags and accuracy challenges found in established data acquisition processes.
It argues that firms seeking to meet the requirements of SFDR otherwise only have access to data sourced from disclosures by large companies in annual reports. The delays this creates could be disadvantageous to investors who need to make swift, informed decisions.
With Agility’s Activeledger interoperable and permissioned distributed ledger platform, Element 22 enables asset managers to directly engage corporates and invite them to submit their ESG data. The information remains on secure servers, where it can be updated without need for new searches and potentially shared to other subscribers.
Private Companies
An advantage of such a setup, apart from the speed of access, is that private firms can also be invited to offer data that might not otherwise appear in the public domain.
Another benefit, Davies argues, is that the technology enables asset managers to ask specific questions of companies, an attribute especially useful considering SFDR requires detailed information also on social and governance risk.
“From some of the firms we’d been talking to we heard they had issues with data sourcing – that SFDR would be asking for new data that they hadn’t previously had to acquire,” he explains. “Also there were some real challenges with data that can’t be found and which vendors would instead approximate or use default values.”
SFDR also proved pivotal because it cemented the notion that ESG is here to stay and will only become more important. Element 22 felt, however, that the processes for helping investors make the right choices about where to put capital were time consuming and clumsy.
Data challenge
Davies said corporates felt frustrated by the prospect of continually meeting hundreds of requests for information each year. With ESGi, Element 22 aimed to simplify the process.
“We look at ESG as a data management challenge, very much as a data management challenge,” he says, adding that corporations are realising that this information is going to be important to their entire operations, not just the data or compliance teams.
“Where ESG has been a side-of-the desk task for a small number of people it now makes sense to consolidate and centralise those things and have, effectively, a master data management approach to getting it right and having consistent information that you can then distribute to everyone in the firm.”
Element 22 expects the practicalities of managing so much data will eventually require more manpower for the industry. But for the moment it’s relying on a great deal of automation as it grows, especially when sifting through unstructured data.
In the meantime, the company is focusing its energies on developing the technology behind ESGi through the Engine accelerator. Beyond that, Davies expects that a slate of best practices will emerge as the ESG space grows, ad they will drive further stages of ESGi’s development.
“We are starting to think about how we can formalise a process for scoring, a methodology or a benchmarking process that we can use to bring greater transparency to clients in the space,” he says. “If you can combine helping the planet with sustainable business practices that make investments perform better, then that feels like a win-win.”
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