Sourcing of ESG data: a challenge or an opportunity?
Theodora Economides and Constantinos Yiannikouris 11:26 - 02 March 2023
Insight into one of the most important ESG challenges faced by investment managers – the availability of ESG data – and a technology solution that enables the transformation of ESG information into investment decision-making: ESG Data Lab.
Responsible finance is exploding, today representing more than 10% of assets under management worldwide. Just a few years ago, socially responsible investment (SRI) was a niche market, concentrated in Europe and whose credibility was based on the expertise and experience of the SRI teams. We are now witnessing a radical change that requires investment managers rethinking methodologies, exploiting massive amounts of ESG (environmental, social, governance) data, implementing structured processes, training staff and modifying algorithms to integrate ESG criteria.
The Importance of Data
Often what impedes action isn’t a lack of intention but, rather, the choices that Executives and Boards must navigate to clearly define their organisations’ approach towards ESG. By developing a holistic view of their sustainability goals and by subsequently integrating that view into their enterprise purpose and strategy, Executives can reduce or even eliminate stakeholder discord and help ensure leaders’ focus on strategically aligned actions and business decisions.
As stewards of their organisations, Boards can play a vital role in guiding businesses towards a more sustainable future by ensuring that long-term vision and strategy is captured in management decision-making.
The availability and sourcing of robust data is one of the most critical challenges in embedding ESG into the strategy and decision-making of an organisation, as well as during the process of defining and implementing action plans.
Indeed, integrating ESG data into investment management practices has become a major consideration for investment professionals and investors alike, and it is completely reshaping strategic priorities and product design. Opting for ESG data providers is a major challenge and hindrance to being able to source accurate data, mainly as a result of high costs, lack of consistency, black-box ratings and time-consuming data collection and treatment.
ESG Data Lab: An Opportunity
In an effort to streamline and support ESG integration, Deloitte has developed ESG Data Lab as an advisory and technology solution for a comprehensive, robust, transparent, and flexible transformation of ESG information into investment decisions.
ESG Data Lab can support investment management to better analyse the ESG performance of companies or a portfolio and compare them with industry peers or multiple benchmark indices. Multiple data sources,
as well as qualitative information, are plugged-in and matched so they can feed proprietary scoring models and performance indicators. ESG Data Lab also includes all the features that investors need to efficiently integrate ESG into their investment decision, such as controversies alerts, portfolio carbon footprint tracking or screening against sector exclusion. The solution is also able to deliver automatic reporting for clients or for regulatory purposes.
A key aim of the ESG Data Lab is to scale ESG integration as a way for both investment managers and investors to make an impact and support financial institutions in the strategic thinking and operational implementation of ESG across all business activities.
The ESG regulatory landscape is changing fast. Sustainability reporting standards and frameworks have been developed to help companies, including investment managers, enhance transparency and communicate sustainability information in a clear and effective way. Deloitte’s ESG Data Lab could provide an invaluable solution to the difficulty of sourcing the required information.
While most companies are taking meaningful steps toward enhancing sustainability disclosures, several challenges remain. Companies are concerned about the accuracy and completeness of sustainability data. In a recent study, Executives list quality (35%) as the top data challenge, up from 25% in 2021. Another 25% of participants cited access to data as their greatest challenge. (Deloitte, 2022 Sustainability Action Report)
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(This opinion article first appeared in the February 2023 issue of GOLD magazine. Click here to view it.)