The quality of environment, social and governance (ESG) data remains a key concern for buyside firms according to a new study – Buyside Financial Institutions Survey: ESG Budgets & Priorities – from independent sustainability research firm Verdantix.
The report, which polled senior executives of buy side investors with a collective $1 trillion in assets, found that just 30% say the quality is very high, while 47% say it is low or very low regarding geo-spatial data solutions.
Geo spatial date describes objects, events, or other features with a location on or near the surface of the earth
The figures are much lower in relation to sentiment monitoring, which leverages natural language processes and machine learning to determine the sentiment of investible asset. A mere 3% describe the quality of current market offerings as very high or high.
As for credit rating agencies, only one in four respondents (26%) say the quality of their ESG data is very high or high.
The report also notes that over half or 58% identify climate change risk analytics as their ESG investment priority as they look to help future proof their portfolios.
In terms of their top ESG financial solution, over one in four or 27% point to ESG scores for investment decisions, followed by 12% look at ESG ratings for credit and a lowly 4% forESG indexes for benchmarking.
“A key challenge highlighted by our research is that data outputs from ESG vendors are perceived in the investor market to have varying levels of validity,” said Kim Knickle, research director at Verdantix.
She added, “There is clear demand for better quality data, increased transparency around methodologies used, and a greater degree of standardisation.”
Knickle also believes that, “To successfully analyse ESG data across the investment portfolio requires sophisticated enterprise data management.“
She noted that two thirds of survey respondents highlighted an enterprise data management for ESG as either very significant or significant to meeting their ESG needs in the next two years.
“Additionally, funds seek a holistic ESG portfolio management solution with 40% of survey respondents noting this technology to be very significant to meet the ESG needs of their funds over the next two years,” she added.
Overall, Knickle attributes the rise in ESG investing to “a plethora of factors, including the establishment of the view that a strong ESG performance of an equity decreases the risk of investment and changing investor preferences to have a positive societal impact.”
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