Integrating ESG data into traditional data management systems may be akin to fitting the proverbial square peg into a round hole, but it’s a challenge that financial institutions are having to confront every day.
There are established workarounds, but they rely on a confluence of expertise in ESG and regular financial data. And there’s the problem, according to managed data services company Rimes Technologies: Those two worlds rarely collide.
“There’s a risk that there isn’t enough communication between the ESG data people, who know ESG, and the data management office, which doesn’t understand the complexities of ESG data,” Rimes Head of ESG Product Management Elisabeth Seep tells ESG Insight. As a result, ESG data integration is “the hottest job today”.Rimes realised some time ago that getting into a position where that dream job can be offered is beyond the resources and capabilities of most financial institutions. And so, the company decided to turn its data management skills to providing those capabilities. In 2020 it began offering ESG data management services, providing sourcing, validation and mastering solutions to its clients.
Three Stages of Client’s ESG Development
That suite of services now comprises offerings that are tailored to three different stages in a client’s ESG development. ESG Cross Reference provides sourcing and mapping while validation and mastering, integration of proprietary data, entity management and propagation are accessible through added-value products called ESG Master and ESG Managed Master.
Seep explains that Rimes has been able to leverage its reputation as a trusted manager of critical data for its asset management and asset owner clients to help them manage their ESG data strategy.
“Our clients are confident that we can tackle the messy world of ESG data,” she says from her New York office. “So it’s really natural that our current clients are coming to us to solve their next data challenge.”
The problems Rimes seeks to solve are many, says Seep, who previously worked for MSCI, integrating ESG data into the company’s fixed income datasets and ratings products.
For a start, sourcing ESG data isn’t easy, or cheap. Rimes found that some clients’ inexperience in the space had led to problems such as duplication of datasets, ill-considered deployment of data and difficulties in knowing where to obtain critical information.
In some cases, companies had received from the same vendor a variety of datasets that gave different answers to the same problem.
Rimes has consequently signed contracts with around 30 data providers to supply the necessary datasets to its clients as well as acquire raw ESG data. The company also works with vendors to ensure any disparities in the data are solved before they reach the client.
This service ensures clients have easy access only to the information they need without going through the time-consuming and costly process of onboarding the providers themselves.
The difficulty of managing the transition in-house is illustrated by the volume of inquiries Rimes receives from firms that have given up on their own ESG projects and have decided instead to buy third-party services. In the quarters either side of New Year that number reached more than 30.
“We get an economy of scale that is quite hard for a client to realise,” says Rimes Head of Benchmark data Services Justin Brickwood. “It still takes them a long time to try a new ESG source because they’ve got to go and do their prioritisation process.”
The time-saving element can be crucial for the likes of fund manufacturers in helping them get their products to market faster than competitors, Brickwood adds.
But before clients can make anything of their newly acquired ESG data, that content has to be cleaned. And this is where Rimes is able to provide enormous value.
The information collected needs to be useable across enterprises and that requires a lot of work in validating, mapping and applying propagation rules. And metadata, such as lineage, needs to be made accurate so that processes such as audit trails can be applied. By diligently processing the data up front, gaps in the data record can be found and filled and errors in estimation models identified, avoiding potentially disruptive errors later on.
“A lot of the functionality that we created for our clients can be applied to this new dataset,” says Seep of ESG data. “Much of those mechanisms are built into our managed data service solution – it’s a natural transition to that.”
Getting the data right is increasingly important because ESG is no longer a “fad”, Seep says. No longer is it possible for a financial institution to tell regulators or an investor that it has based its disclosures and analyses on a single rating agency or a single application.
In the recent past, companies would buy ESG data on a departmental basis. This was inefficient – some firms would find they had paid for the same dataset multiple times because there had been no communication between them about their needs. Probably more fundamentally, it quickly became apparent that more data was going to be needed by every part of an enterprise as the demands of investors and regulators mounted.
“ESG is core to decision making, it’s core to product creation, core to regulatory reporting, core to performance management,” Seep says. “It has really become like all other financial data that companies have been using – it’s as relevant as that.”
Rimes is in the process of developing new tools to add to its product offerings. Powerful analytics are being rolled out in an on-going process of upgrades to its services, as are entity relationship capabilities. Supply-chain and geospatial analyses as well as alternative datasets are also slated for inclusion.
While the goal of today is to get the ESG foundation right, Rimes is also organising the data for the next generation of use cases.
“We’ve created a turn-key solution that is the industry standard while adding flexibility for our clients to interact with their ESG data with technology that our competitors don’t have,” says Seeps.
“We’ve been doing a lot of research, a lot of investment and we know a lot; we’re ahead of the curve,” she adds. “Everybody in the firm is really, really excited about solving the ESG data problem.”