ESG data keeps on evolving, but are financial institutions keeping pace?

Yann Bloch newest - Global Banking | FinanceBy Yann Bloch, head of product and pre-sales Americas at NeoXam

Earlier this month, Bloomberg published their much-anticipated annual European ESG Data Trends Survey report, carrying with it some fascinating findings on the current state of the market. The survey, taken by respondents from London, Stockholm, Geneva, Amsterdam, Frankfurt, Paris, and Milan throughout 2023, posed questions about ESG data prioritization, challenges, and data management practices.

According to the survey, the leading ESG data management challenge being felt by market participants right now is handling constantly evolving and new data content within the realm of sustainable investing. This chimes with what we are constantly hearing from current and prospective clients – that the kind of information on offer to support sustainable investment strategies is constantly evolving and changing, considering the different categories and developing understanding of this as an investment principle by the masses. This is partly on account of the demand for data, which has exploded over the last half-decade, and not just from funds marketing themselves as sustainable investing or ESG funds. The demand is coming from all funds in the same way that they demand information on financial performance – it is seen as essential to give more context to the assets that they invest in.

The fact is, it is now seen as a fundamentally important information category, which can also be relevant to the broader mission statements of both asset managers and their clients. All asset managers now must be able to show accurate ESG scores, and service providers need to be able to aid asset managers/clients to legitimise the actual scoring. However, a key issue that faces firms in dealing with this deluge of data that they now drown in, is managing it all.

This data is very different in many cases from the more traditional types of market data that they are used to having attached to the more vanilla asset types such as listed equities or fixed income. It can come in vastly different forms, and from a plethora of different suppliers who specialise in very particular types of sustainable investing information. This creates a major risk within the business that the information will not be utilised to its maximum potential, and that it may not even be easily accessible to all relevant teams within the institution.

Given the fact that to large parts of the market, this remains a nascent space that is developing extremely rapidly, this makes sense – many firms will be finding themselves in a position where they are relying on systems that are simply not fit for modern purpose. Many institutions are finding themselves facing a real disparity between the capabilities of their legacy data management systems, which sometimes may be little more than a scattering of excel spreadsheets across the business, and the requirements that they face when it comes to managing and utilising the ESG information that they consume at an increasing rate. This is why investment in modern technology, capable of processing these rafts of new data in an efficient manner, has been pushed up the agendas of many financial institutions. This was reflected in the results of the Bloomberg study, with 20% of firms currently considering their data management strategy.

It therefore is not surprising to me that so many European institutions have reported that they struggle to manage the evolving data content involved when integrating sustainable investing principles into their strategies. To address this issue head-on and make certain that the statistics are more favourable in the 2025 edition of this report, firms must find a way to ensure that this new, incredibly useful information that they are consuming is being normalised and centralised so that it can be productive and useful for the entire business.