Spending on environmental, social and governance (ESG) data is on the rise at an annual growth rate of 20% and forecasted to approach $1bn this year while global ESG assets are expected to reach $53 trn by 2025 – more than a third of projected global assets under management, according to a new report by Substantive Research, a research discovery and research spend analytics provider .
As a result, the report said that investors are now placing greater emphasis on company disclosures, ESG integration and ratings agencies.
It added, that as concerns over greenwashing of sustainability performance increase, identifying ESG data providers who present information with transparent methodologies has become more important.
The report which analysed over 300 data vendors found that whilst many consumers of ESG data select well-established institutions as their supplier, there is growing diverse ecosystem of providers outside of the ‘household names’.
Start-ups (1-5 years in existence) already comprise over a third of market supply, while mid-level (started 6-10 years ago) and established firms (launched 10-plus years ago) constitute 24% and 37 %, respectively.
In terms of content, it found that around 53% of the providers are generalists, in the sense that they provide the ESG gamut of data to clients while only 33% specialise in one of the ESG constituents.
It noted that as the ESG process within asset managers evolves, shopping for data is likely to increasingly target specialists, as buyside firms look to create their own ‘special sauce’. In this category, just 5% are targeted towards social, 70% focus on the environmental and 25% look at governance.
In addition, 70% have developed their own ESG frameworks in combination with one or more of 20 other global sustainable reporting standards.
“We think buyside institutions will look to complement their ESG internal engines with differentiated and niche data inputs, to make their internal processes work better, allowing them to differentiate themselves in turn to their own customer base,” says Mike Carrodus, CEO, Substantive Research
He adds, “Concerns around greenwashing mean that transparency is an extremely big issue with ESG data. One of the reasons transparency is difficult to achieve, is that it can show the rest of the market how a vendor is innovating, which can make maintaining a competitive advantage more of a challenge.
However, our work shows that there are providers out there who maintain a great balance between being transparent and not giving away their competitive advantages, it’s just a case of finding them, which is where we can help.”
Carrodus also notes that one “one of the reasons why ‘social’, the ‘S’ of ESG, is lacking in terms of data vendor specialists, is that there was much less demand for it in comparison with “E’ or “G”, until the Covid pandemic brought social issues more to the forefront.
He adds, “We now expect to see this area better serviced over the coming months and years. Social issues can be hard to measure and quantify, but now there is more demand, we think vendors will find a way to benchmark these issues more effectively and consistently.”
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