ESG Data Primary Barrier to Integration Markets MediaESG Data Primary Barrier to Integration Markets MediaESG Data Primary Barrier to Integration Markets Media
Impact Investing Forum 2024
London. April 24-25, 2023.
Asset managers still face data barriers when trying to integrate ESG, governance and social strategies. BNP Paribas’ ESG Global Survey 2021 found that 59% of respondents said data issues were the top two obstacles to ESG integration. This is slightly lower than the 66% who responded in the previous survey in 2019. The survey of 356 institutional investors with $11.3 trillion in assets was conducted between April and May 2019. Half of respondents (51%) said that the social component of ESG is still the most difficult due to a lack in the right data. According to the report, social data is harder to find and there is a severe lack of standardization around social metrics. This comes at a moment when the social component is becoming more important to end investors. Jane Ambachtsheer is the global head of sustainability for BNP Paribas Asset management. She stated in the report that ESG metrics are not subjected to mandatory reporting. She stated that the data resulting from corporate voluntary reporting may be inconsistent in quality and what they report because it relies on corporate reporting. “We can observe many regional disparities that can lead to the use a lot more estimations. Source: BNP Paribas ESG Global Survey 2021. 74% of asset managers use multiple sources to overcome the data barrier. This is nearly three quarters. 41% of asset managers conduct their own research methods rather than relying on third party data. 43% ensure transparency about the source of raw data. According to Alexandre Gautier, a representative of Banque de France, the report reveals that there is a risk for greenwashing data after the events of the global financial crisis and credit rating agencies. This will present a significant challenge to regulators, investors, and customers. Florence Fontan, head for company engagement and general secretary at BNP Paribas Securities Services said in a media briefing, that data has been a problem since the first survey. She said that three years ago, we didn’t have precise data in certain areas, even the environment. “Now, the question is not whether we have the data but rather the consistency and level granularity. Florence Fontan, BNP paribas Securities Services Fontan stated that the European Union’s Sustainable Finance Disclosure Regulation (expected in November) should encourage disclosure. The defining standards should reduce misrepresentation. She said that SFDR is lacking important details in its implementation guidelines today and that we need more granular detail. Trevor Allen, sustainability analyst at BNP Paribas, stated in the media briefing, that SFDR will provide more information about reporting standards for companies. He said that regulators and governments also need to consider dualmateriality, which is how companies report on the transition and physical risks of climate change as well as how they impact the environment. He said that once we get more granularity, transparency, we will see a significant shift in how we can integrate this into our investments. But we need consistency. Understanding, year in, year out, how a company can affect climate change and impact it is going to be a game-changer. Technology can also be used to improve the use ESG data. Sixty-seven percent of respondents, or 67%, cited ESG disclosure/reporting at all levels (company portfolio, fund, and company) as their top priority. Eastspring Investments’ Michael Woolley stated in the report that technology has the ability to combine structured data and unstructured data. This allows you to look further beyond the formal company disclosures. Source: BNP Paribas ESG Global Survey 2021. Fontan stated that ESG integration Fontan said that ESG integration has seen a significant acceleration since the last survey. She added that “Niche or specialist ESG team no longer sit somewhere within the organisation except ESG, but are spread throughout the organisation in investor strategies as well as core processes.” In 2019, not one of the respondents said that their organization had included ESG in all of their investments. Over a fifth (22%) of investors now say that ESG is part of their entire portfolio. However, there is still much to be done. Two thirds of investors still have ESG in less that half of their portfolios. Trevor Allen, BNP PARIbas Allen said that ESG integration will continue to progress. He described a barbell effect, with one fifth of investors stating that ESG is crucial to everything and 44% of investors integrating ESG in 25% or less their overall investment portfolios. Allen stated that 55% of respondents told him that they expect ESG to be integrated into at most 50% of their portfolios within the next two years. He said that negative screening has been “maxed” since investors who wanted to exit controversial businesses are likely to have done so by now. Active engagement is the new focus for businesses that are in transition. He said, “One of the key elements we see changing is the way we engage with businesses to ensure that they have the capital they need to change their business activities.” Alternatives Delphine Queniart is the global head of sustainable finance solutions at BNP Paribas. She stated that there is a growing ESG sensibility towards non-listed assets and alternatives. The survey revealed that 41% of investors include ESG considerations in infrastructure. This was followed by 38% for private equity/debt and 37% for real estate. Delphine Queniart (BNP Paribas) Queniart said that non-listed assets face greater difficulties in standardizing measurements. They have a lot of potential for impact. She explained that the majority shareholder in private equity has the power to influence changes within a company and improve reporting. Infrastructure strategies can have positive environmental outcomes through energy transition projects. Their longer investment horizons align strongly with asset owners (54% have a horizon of seven years or more, compared to 31% for asset managers, according to the survey). RECEIVE THE NEWSLETTER SIGN-UP To receive exclusive articles about securities markets