The issues and challenges for market participants in dealing with ESG and sustainability are manifold, and as usual the real problems are arising from the details. In this context we see the following key issues that need to be addressed:
Acquisition of data, research and scoring:
A wide range of primary data from various sources is required for analysis and reporting. Among other things, these come from company reports, financial statements and balance sheets as well as the assessment of third parties. The differences in interpretation and evaluation make data sets hard to compare, and the analysis of content in conjunction with indices and the definition of benchmarks become problems.
The biggest obstacle in this respect, however, is that no data is collected at all. This is fatal for the analytical categorisation of the respective vehicle or company. A particular problem for start-ups and non-listed companies, especially if these are sustainable in nature and provide innovation, supporting solutions for sustainable development.
Data management:
The central issue of data management beyond extraction or acquisition lies in the multitude of sources and the lack of comparability. Resolving these issues requires content expertise for different areas on the processing side:
– The selection of data sources, data platforms and their systematic approach.
– The management of data with regards to standardization and integration on an asset, portfolio and company level.
– The operation of systems and the intelligent management of the multitude of interfaces, which ultimately poses new challenges for enterprise data management. Central to success in this area will be an appropriate strategy definition.
Complexity and ambiguity in regulation, including reporting requirements is difficult to grasp. This is due to the complexity of the data and topics, and yet always subject to change. The need to keep up with the necessary development, definition and strategy finding for the individual market participants is a further issue to be considered. Finally, there are extensive reporting requirements that should not be underestimated in terms of effort.
Timing and costs:
The dynamics of the development as well as the complexity of the data procurement needs to be considered. The processing of data and the regulatory requirements result in considerable costs (data, scoring requests, systems) in addition to personnel costs. Even for smaller asset managers, a six-figure Euro amount is quickly reached, and deadlines for implementation are tight.
For anyone who would like to have aa closer look at the availability of data offerings and systems in the ESG market as well as the state of regulation, we have prepared a small study that we are happy to make available.