Building an ESG data platform for financial services
Firms developing ESG frameworks must navigate inconsistent metrics and indicators, among other issues. Niresh Rajah outlines how we developed a bespoke ESG data and analytics screener platform to overcome these challenges and helped a client get closer to their sustainability goals.
The spotlight is on ESG. The market is responding to public and regulatory pressure to move beyond traditional growth indicators. Financial services firms are seeking to better understand and justify their ESG positions. This includes existing and future investments, as well as trading positions. However, unlike financial reporting, which is standardised and focused on growth, corporate reporting on ESG remains vague and complex.
Firms can leverage data to support their ESG journey - building a robust, scalable, and future-proof data platform can help firms navigate a continuously evolving sustainability landscape. An ESG data and analytics platform can overcome several challenges and provide firm-wide benefits, including:
Strengthening ESG strategy and metrics
Standardising data measures from various sources
Identifying consistent definitions of peer groups and industry sectors
Improving calculation models used to deal with data gaps
Minimising interpretation bias from human analysts
Identifying desired outcomes and challenges
A leading asset manager engaged us to help them in their ESG data management journey. This engagement covered several areas, including building an ESG data strategy, improving ESG data quality, and developing a minimum viable product (MVP) for an ESG data and analytics tool. The key objective was for the firm to understand its portfolios ESG ratings, and identify the underlying assets that influence those portfolios.
We worked with our client to identify key outcomes and benefits, as well as the enabling capabilities required. Following in-depth workshops, we identified key factors that influenced our approach:
the asset manager’s stakeholders (ie, fund managers, finance, regulators, company employees and customers) each have their own ESG perspective
the companies that the firm’s fund managers invest in each have their own ESG strategy to achieve their goals. This, in turn, will impact their ESG rating. It is this rating that the data platform uses to provide insight into a company's overall rating and its related impact on a given fund’s profile
ESG ratings can include a range of data points, which means a solution must be able to quantify information from each aspect: environment, social, and governance
the client required assurance over these ratings with a view to supporting investments.
Since ESG investing is an emerging space, there are many business and technical obstacles to overcome. Examples include variations in scorings from the rating agencies, potential for corporates to greenwash their ESG profiles, quality and completeness of internal and external data, weightings when comparing different sources of rating data, and the sheer volume of data that is required to be processed, aggregated and interpreted.
Any robust solution must address these challenges.
Our ESG data and analytics screener
To meet both internal and external needs of the asset manager, we decided to support the development of a solution, the ESG data and analytics screener, which provides the foundations for a scalable, future-proof platform. This platform is an ‘idea-generation’ tool to assist in developing ESG products in line with a firm’s requirements and provide agile analytics.
Our technical, project and data management team partnered with the client’s investment analytics group to develop the platform for ESG scoring, as well as screening of assets and funds. We cut the development setup time through extensive information sharing between these teams, applying existing specialist ESG and investment data expertise, as well as client-specific and industry knowledge gained through previous engagements.
ESG data benchmarks are inconsistent, making standardising these data points a core challenge. The collection, categorisation, analysis and scoring of ESG factors produces varying results, depending on the provider. This means firms cannot rely on a single source of information. To address this, our platform produces ratings drawn from several third-party data providers of metrics and benchmarks.
The successful initial phase provided a solid foundation for continued development of the platform. Firms must have a robust underlying ESG data strategy that will allow them to continue building the data and analytics platform to meet new demands.
We recognise that sustainability requirements will continue to evolve, meaning our platform needs to be adaptable and scalable. The solution we developed allows several key workstreams to be brought together and synergised - including the ESG data strategy, work on ESG Book of Records (EBOR), as well as the target operating model.
Starting the ESG data journey
ESG is both a critical risk and opportunity for financial services firms. There are few agreed benchmarks, allowing for a large degree of interpretation. Our ESG data and analytics screener can compare benchmarks from different providers to find both commonalities and outliers – providing as complete a picture as possible.
Building the whole environment is difficult and requires implementing the right frameworks and processes. Additionally, firms need a range of expertise; people who understand business problems, data and technical requirements, and professionals that can interpret that information and deliver a robust technical solution.
We can support firms seeking to start the journey on mapping and understanding ESG data to support a broader organisational shift. Our experience and expertise can help build a tailored ESG data and analytics solution that meets firms’ needs and moves towards new sustainability objectives.
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To learn more about building an ESG data platform to help reach your commercial goals, get in touch.