The nature of the ESG data challenge has shifted from lack of information to issues with quality and consistency. Open servicing platforms can help tackle these issues while connecting investors and managers with a wider range of providers.
The integration of environmental, social and governance (ESG) issues into the investment process is accelerating, yet challenges around data remain, and they are slowing down progress across the industry.
The nature of the data challenge has changed considerably in the past few years. Until a couple of years ago, the main problem for institutional investors was a lack of data – today it is about achieving standardisation across the various sources it comes from.
In BNP Paribas’ 2021 ESG Global Survey of institutional investors, 59% of respondents cited issues related to data as one of their top two challenges to ESG integration. Inconsistency and quality of data were the highest concerns.
Christelle Ybanez, Head of Asset Owners & Managers Strategy and Planning at BNP Paribas Securities Services, says investors and asset managers are facing complexity with the management and consumption of ESG data.
“There is complexity with the quality, distribution, user experience and reporting,” she explains.
They also have challenges in aggregating data internally and externally and increasingly need more refined data.
“As a data custodian, we want to really help our clients improve the decision-making process by developing trust and transparency, which is mandatory now with the EU’s Sustainable Finance Disclosure Regulation (SFDR),” says Ybanez.
To overcome data hurdles, institutional investors’ primary approach involves using and comparing multiple sources of data. A significant number conduct their own research, using a range of methodologies, rather than just relying solely on third-party datasets.
ESG is a fast-evolving and broadening area. There is a diverse range of services covering many different ESG investment themes, leading to a spectrum of shades within sustainable finance, explains Patrice Hiddinga, CEO at Manaos, an open servicing ESG platform launched in 2020 by BNP Paribas Securities Services.
“ESG is a very deep topic, and we are in the middle of a very diverse ecosystem of initiatives, regulations and viewpoints,” he says. “There is no one single view of the truth. This will not change for a long time, because ESG reflects the diversity of cultures and viewpoints. While there are many ESG providers to choose from, it is not possible for one to cover the full gamut of ESG themes because no sole provider is able to be a master across everything.”
Hiddinga says it is therefore useful for investors and asset managers to understand why some ESG experts may have a divergent view from other, potentially more prominent, experts.
Open servicing can help by facilitating a connection with a range of different vendors within a single platform.
BNP Paribas Securities Services set up Manaos to provide a ‘plug and play solution’ for asset owners and asset managers looking to quickly assess the ESG scores of their portfolios across a range of data sources.
“Manaos was created on the basis that we cannot ourselves acquire all the technologies that is required so we aspire to leverage other firms’ expertise,” explains Ybanez.
“The second pillar of the platform is to standardise and aggregate data. The third is analytics and reporting to be able to meet various reporting requirements – such as SFDR – and provide a set of solutions, leveraging on enriched, qualified and robust data sets.”
By providing multiple feeds into a wide variety of specialist areas and their data sources, Manaos helps overcome challenges around inconsistency and conflicting ratings. This enables investors and asset managers to better assess their portfolios and provide the basis for proprietary analysis.
Investors often end up having to choose between a ‘build or buy’ approach with ESG data, yet both are possible on open servicing platforms. They enable users to first sample what is available and then purchase standalone ESG datasets to analyse themselves.
“Having a forum that audits the marketplace is the best option because it enables you to find the experts that will use the methodology most suited to your requirements. You also have the choice to test others that take a different approach,” says Hiddinga. “It is like home delivery with a service layer baked in. You can choose desired vendors and receive the packaged analysis as part of the deal.”
Given the vast differences between the value propositions of traditional ESG data providers and FinTechs new to the sector, one of the platform’s key benefits is allowing users to test these newcomers.
“Users can test the whole variety of FinTech and traditional ESG providers, and choose the one that will be the most suitable to their or their client’s needs. Rather than spending weeks or months doing the project, clients can test new ESG providers on Manaos in just a couple of days,” says Hiddinga.
The platform allows smaller asset owners a comprehensive view of their investments. “This transparency is critical when you want to have a complete and fair view of the ESG colour of your portfolio,” he adds.
It took BNP Paribas Securities Services 18 months to gather all the data providers and experts onto Manaos. It now has six providers live on the platform and is aiming to increase that to 15 by June 2022.
Its current providers include S&P Global’s centralised source for sustainability intelligence Sustainable1, Clarity AI, which offers a wide range of ESG scoring solutions, and Util, a UK-based company that focuses on the UN’s Sustainable Development Goals. Other providers include Moody’s ESG Solution Vigeo Eiris, which uses hundreds of human analysts, and Carbon4 Finance, which focuses on biodiversity and carbon footprints. More are to come online over 2022.
The costs of going down either a build or buy route can be very high, whereas an open servicing model allows investors to sample what is available without having to purchase it first.
The cost to investors on Manaos for data management is close to zero*, ensuring the platform is open to many different types and sizes of institutions. Clients have the option to pick further ESG solutions, services and analysis if they wish, but it is not a requirement.
“Our freemium model avoids any barrier to entry and provides the industry with a very secure, scalable, and effective solution for data management,” says Ybanez. “Clients already say that it’s cheaper compared to what they have today and it’s a way to get some fresher data than through their current model.”
The open servicing model is fast turning into a game-changer for the ESG world. Some of the biggest data problems that institutional investors and asset managers face can now be solved in a simple and cost-effective manner.