ESG investments are currently riding a boom as institutional investors embrace sustainable and responsible investing. However, poor ESG data can lead to costly investment mistakes and inaccurate disclosures to investors.
Susanna Rust filed this report for IPE.com:
“The importance of good data governance does not end when it comes to ESG data,” wrote Tarne Bevan, an independent consultant and main author of the report. “Yet in the rush to join the growing enthusiasm for ESG investments, many firms ignore the imperative for strong data governance. Associated risks, according to the report, included ill-informed investment decisions, inaccurate disclosures to regulators and investors, disingenuous marketing materials, and mis-selling claims.
The report was co-authored by Adam Taylor, data governance lead at Aviva Investors – although he provided input in a personal capacity. Bevan previously worked at Aviva Investors as head of central investment services. As a consultant she has done work at firms such as Janus Henderson, Fidelity, and Amundi (Pioneer), according to her LinkedIn profile. She was recently interim chief operating officer, investments for GAM Investments.
The report identified three steps to mitigating the risks – reputational, regulatory and fiduciary – involved in using or producing ESG data. According to these, asset managers should:
Assess ESG data in terms of its sourcing method, the timeliness of collation, periodicity and availability, plus any methodologies used in its publication;
Consider the implications of integrating the data in investment processes “in terms of its relatedness to financial data and applicability to the capital structure of investee companies”; and
Agree how to integrate data into an existing governance framework, ensuring appropriate subject matter experts across the relevant business functions are involved, such as representatives from investment, marketing, product, client reporting, compliance, risk, data and IT functions.