Navigating the Data Maze
In the dynamic landscape of sustainable investing, where environmental, social, and governance (ESG) factors are gaining paramount importance, the need for data transparency has never been more critical. As asset managers strive to align their portfolios with ethical and sustainable practices, the demand for reliable, traceable data becomes the bedrock of responsible investment decisions.
One key challenge in the realm of sustainable investing is the diversity and complexity of data points involved—emissions data, water usage, social impact metrics—the list goes on. To navigate this maze successfully, asset managers will need to rely on data vendors to provide a clear audit trail and data lineage. This ensures that every reported data point can be meticulously traced back to its official underlying source. Such transparency is not merely a bureaucratic formality; it is the linchpin for robust due diligence.
Investment Management & Company Interactions
Looking at this from a company perspective, in a 2023 Willis Tower Watson Risk Manager Survey*, 74% of respondents stated that improving their ‘ESG Score’ is a core focus for their business, however, the report indicates that the magnitude of frameworks and ESG data relevance to their industry is making this task ever more complex.
From a stewardship standpoint, transparency is paramount for monitoring how companies are progressing towards their sustainable goals. It's not enough for companies to claim adherence to ESG principles; investors, regulators, and the public demand tangible evidence. Transparent data empowers asset managers to scrutinize the journey of each company in their portfolio, fostering accountability and trust.
Thus, there is a specific need for closer engagement between investment managers and underlying companies, however, this engagement needs to be supported with a scalable, AI supported process to drill into ESG disclosures in order to clearly discuss progress towards defined ESG goals.
Consumption based ESG data procurement
For asset managers to truly meet regulations and deliver sustainable products to the market, data must be not only accurate but also cost-effective and consumption-based. This means having the flexibility to procure only the data that is pertinent to their investment strategies. In an era where resource efficiency is synonymous with sustainability, it is crucial that asset managers can access the information they need without unnecessary data license fees for a universe of data they may not actually need.
Consumption-based data models allow asset managers to be discerning in their choices, ensuring that they only pay and extract what they need, in line with their investment universe. This not only aligns with the principles of sustainability but also makes economic sense. It empowers asset managers to tailor their data procurement to the specific needs of their portfolios, avoiding unnecessary costs associated with surplus or irrelevant information.
In conclusion, the journey toward sustainable investing is intrinsically linked to the transparency and reliability of the data that guides it. From emissions data to social impact metrics, every piece of information must be traceable and accountable. With the rise of LLMs, the importance of cost-effective, consumption-based data models cannot be overstated.
Source*
Accessible and relevant data is key to ESG performance - WTW (wtwco.com)