Data consultancy Element22 and distributed ledger developer Agility Sciences have released ESGi, an innovative solution designed to solve problems of ESG data, such as time lags and accuracy, and provide buy-side firms with trusted data in real time. The release coincides with the first deadline of the EU’s Sustainable Finance Disclosure Regulation (SFDR), which comes into play tomorrow, 10 March 2021.
While interest in ESG investing is rising rapidly, sourcing required ESG data is a problem as it is only disclosed by large companies in annual reports, creating a time lag that is not conducive to good investment decisions. Also, private companies do not need to disclose their ESG credentials, a problem for asset managers looking to differentiate by including more private companies in their portfolios.ESGi solves these problems with a solution based on Agility’s Activeledger interoperable and permissioned distributed ledger platform. It allows fund managers to identify companies they want to review, both public and private, and invite the companies to join the platform and answer questions on their ESG policies and data.
Investees load information using a web interface and the data is consumed using an API to the platform. To ensure data security, only generic ESG data is on the chain, with data such as portfolio constituents and holdings held in the asset manager’s environment where it can be integrated with ESG data but is never disclosed.
Mark Davies, partner at Element22, says: “ESGi makes it as easy as possible for firms to submit, select and share ESG data. If an ESG data point is on the platform it doesn’t need to be submitted again and could be used for any number of regulations as they emerge.”While data vendors offer a good breadth and depth of ESG data, it is largely from public documents and has a significant time lag. Davies explains that ESGi avoids time lags by updating data in real time and pushing it to firms requesting the data. He adds: “ESGi is designed to supplement vendor data and answer explicit questions. It can also add investees that are not covered elsewhere.”
The solution will initially enable fund managers to source mandatory ESG data needed to comply with SFDR. Additional functionality to support sustainability regulations in other jurisdictions as well as use cases such as product creation and portfolio construction will follow.
It will be run in a pilot phase for the next couple of months and is expected to transition to a commercial model later in the year. Investees and fund managers are taking part in alpha and beta development, although Davies notes that Element22 and Agility Sciences are happy to help firms with more immediate needs to close ESG data gaps. He is also keen to hear from firms that would like to take part in the pilot, but will be locking down numbers soon.
Meantime, ESGi has been selected to join the Investment Association’s (IA) latest cohort of high potential fintech firms that will take part in the IA Engine Innovator Programme, the organisation’s fintech accelerator and innovation hub for the investment management industry.