Here's why ESG adoption from the world's biggest asset managers all comes down to data

  • A new administration has asset managers hopeful for progress on a longtime issue: ESG data.
  • Biden is expected to take on topics like climate change, which the industry believes could usher in more ESG growth.
  • But “ESG” has no clear-cut definition, and investors say smartly analyzing data must be part of the equation.
  • Visit the Business section of Insider for more stories.

A new administration, including a passionate new head of the Securities and Exchange Commission, Gary Gensler, has the asset management industry hopeful for meaningful progress on a longtime issue: data for environment, social, and governance-focused funds.

These products, known broadly as ESG, have gained a lot of traction in recent years. With President Joe Biden’s administration set to more forcefully take on topics like climate change and racial inequity, the financial services industry believes the next four years could be the biggest growth yet for the space. 

But finding out which companies are necessarily on the right side can be difficult. The absence of a uniform set of guidelines or disclosures all firms are forced to release is why data around ESG  is such a sticky subject.

“If data is the new oil, then we need to get it right,” Sandra Myburgh, founder of the New York investment manager FERN Impact Partners, said during a virtual industry conference the asset management events company Context Summits held last month. 

When research firm Cerulli Associates polled institutional investors during the first quarter of 2020, 39% of respondents said that companies’ limited or selective ESG data disclosures present a significant challenge in assessing ESG metrics’ impact overall. Cerulli’s survey, published earlier this month, also found that “insufficient” data from third-party providers and the sheer subjectivity of ESG factors in investment analyses were also hurdles in investors’ eyes.

“As more asset managers consider material ESG information as part of their investment framework, asset owners want to know how asset managers use ESG data to better understand what a company does and how it does it,” said Michele Giuditta, a director in the institutional practice of research firm Cerulli Associates, in a report published earlier this month.

Large institutional asset owners like pensions struggle to identify top ESG managers for similar reasons, according to a recent report from London-based consultancy bfinance.

More than eight of every ten institutional asset manager surveyed said they “are experiencing challenges in obtaining consistent ESG reporting across asset managers and asset classes, with 55% calling this a ‘major challenge,'” the report reads. 

 ‘I don’t know if we’ll ever get uniformity in these scores’ 

That great obstacle may be addressed soon enough.

Andrew Collins has thought about ESG data for a good chunk of his career now. The director of ESG and responsible investing at San Francisco Employees’ Retirement System, Collins previously worked at the Sustainability Accounting Standards Board, where he was the lead author on the agency’s 77 industry standards for public companies to disclose. 

The conversation around data — which he calls ESG’s “big challenge” — often misses the point, as frustrated asset managers point to ratings agencies’ disparate rankings of the same company or sector.

To Collins, that’s the difference between ESG data and ESG information: a rating or scorecard is information, and it’s the opinion of the ratings agency.

“I don’t know if we’ll ever get uniformity in these scores,” he said at the Context Summits conference.

ESG data, meanwhile, would be information directly from the source, like a company disclosing of its emissions.

The data the ratings agencies are building the scores off of needs to improve and become more standardized, but Collins believes there’s “light at the end of the tunnel” with the new administration, he said.

“Hopefully that playing field is level for all these different entities to then apply their own judgments on top of,” he added. 

Learn more about the financial services industry.

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