hen it comes to data, the concept of “garbage in, garbage out” applies to green investing as much as other investment strategies. While investors need a baseline level of standardized data to support relevance, objectivity and comparability, they face fragmented data from multiple sources, including company reports, news articles, data vendors and rating agencies.
There is currently a clear challenge with the quality and consistency of environmental, social and governance (ESG) data, driven by maturing corporate reporting standards, and the variety of taxonomies and methodologies used by the various ESG data providers.
Nevertheless, ESG data integration must evolve quickly, as investors are demanding more precise and more transparent investment decisions, amid rising concerns about greenwashing. Our EY teams believe that ESG reporting needs to mature to have the same level of rigor and relevance as financial disclosures to better enable investors to understand the economic impact of different ESG strategies and targets.
In response, EY teams conducted research and found that leading financial services firms have started to integrate ESG into their systems and processes, including comprehensive data and technology solutions that allow portfolio managers to see and interrogate ESG metrics as easily as they can traditional financial metrics, and many of these leading firms no longer rely solely on ESG data vendors, instead combining vendor data with firm data to derive greater insight. Even at the simpler end, firms now purchase multiple data sets and overlay that with their own analysis.
Still, these significant investments in data, systems and specialists are hampered by an ESG rating agency and vendor landscape that is complex and lacks consensus: from missing consistency and correlation in the underlying data sources to the challenges associated with mapping financial services firms’ unique ESG data needs against the various solutions in the market, it’s hard to determine how vendors and solutions compare.