Key findings from a recent report have found that when it comes to environmental, social and governance (ESG), data is the biggest challenge, with coverage, consistency and comparability ranking as the most cited issues.
The results were revealed by Clearwater Analytics and Sionic for a Europe-wide study exploring how ready the European asset management industry is for the Sustainable Financial Disclosure Regulation (SFDR) and ESG transparency initiatives.
Findings from the study show external data providers are becoming more vital with 95 per cent of asset managers subscribing to at least one, averaging five, with 60 per cent aiming to increase this number over the coming year.
Meanwhile, asset owners are subscribing to fewer, with half not subscribing to any and the average being one, however, 43 per cent said they were looking to increase.
All asset managers are creating their own ESG data with over 75 per cent creating both scores and company engagement data, whereas 42 per cent of owners are not producing any internal ESG data.
The report highlights that asset managers and asset owners are in the process of making significant enhancements to their operating model to support sustainable investment activities.
With increasing inflows of funds into ESG-related products and growing regulatory interest, this is just the beginning of a tsunami of change, according to Clearwater Analytics and Sionic.
Based on the results of the study, they predict ESG data providers will appear, others will be acquired, further regulations will be imposed, clients will demand further insights and restrictions.
Firms will want to future proof themselves against the impacts by ensuring that their technology and data platforms offer the flexibility and scale to cope while providing an enhanced (internal or external) client experience, the report suggests.
It also states that sustainable investment could be the opportunity or the tipping point to address and input a sustainable, efficient and effective operating model.
Clare Vincent-Silk, the report’s lead author and partner at Sionic, comments: “Sustainable investment is increasing the challenges on data functions that are dealing with disparate, incomplete ESG data sets which are being used as inputs to internal modelling, exclusion checks and reporting.”
Vincent-Silk continues: “Firms need to have in place an efficient and effective operating model, ensuring that their technology and data platforms offer the flexibility and scale to cope with this evolving type of investment activity, while providing an enhanced internal or external client experience.”
Robert Keller, chartered financial analyst, head of product, investment management at Clearwater Analytics, says: “It’s clear that asset managers and asset owners are actively making significant enhancements to their operating model to support sustainable investment activities.”
Keller adds: “But we believe that the increasing in-flow of funds into ESG-related products and growing regulatory interest mean that this is just the beginning of a tsunami of change.”
The report is based on a March to April 2021 survey of 21 European asset managers and 14 asset owners, including insurance companies and pension funds.
Click here to read Sionic’s Jim Monahan reflections on the lessons learned in the world of corporate actions over the last year and the opportunities that lie ahead.
