Investing in ESG data providers or environmental social, Governance is gaining traction and wider acceptance. Investors demand higher transparency from the companies in their investment portfolio, especially on the company’s ESG risk management and the impact the company has on the environment and society.
Why ESG Data Providers?
Where ESG data providers help investors. ESG data providers use company disclosures and answer questions that can help investors evaluate the company’s risk management framework and ESG impact. Answering questions on the company’s ESG risk management framework and impact requires domain understanding, ability to normalize data, compare across peers and convert the data collected to structured formats that can be used by evaluation models.
With companies increasing disclosures on their risk management and ESG impact, investors need to use this data to track portfolio performance. While the disclosures are increasing, there is no standardization in disclosure frameworks, units, formats or even structure. While standard frameworks are available, they are not consistently adopted. Even these right standard frameworks do not stipulate rigid reporting formats or units.
The types of ESG data providers
Market data providers collect comprehensive information on commodities, fixed income instruments, equity issuers, foreign currency markets and other market trends. As part of this coverage these data providers also provide certain information on the ESG performance of companies they cover. Usually ESG data provided by market data providers is largely quantitative and does not provide the depth of information sought by portfolio managers.
Importance of ESG Integration
Multiple studies and analysis have proven that company that manage ESG risks better also offer superior investor returns. Hence asset managers are increasingly using ESG criteria for asset selection and portfolio maintenance. These asset managers while seeking Alpha are realizing that using an off the shelf analysis available to all market participants is not helping in differentiating their portfolio strategy and hence are relying on specialized data providers to collect and analyze specific data that is being used in advance analytics.
ESG assessment providers
These companies collect detailed ESG data, apply their methodologies and offer ESG assessments. These assessments are either offered as reports or the scores used to construct the reports are offered as data feeds. Assessment providers at times also offer some raw data points used in constructing the reports, for example SFDR data points.
Specialized ESG data providers
The specialized data providers are service providers who provide ESG metrics specific data with provenance. Usually these data providers work on a client request and specific data points are collected using methodologies prescribed by asset owners/managers.
No responses yet