ESG Data Landscape: Overview & Challenges
Standard ESG data providers have significantly strengthened their offer and increased their scale over recent years. However, they are still struggling to solve key data challenges and no single provider can currently provide a robust ‘one-stop-shop’ ESG solution. The most sophisticated institutional investors typically have to implement a multi provider approach leveraging a mix of standard ESG data providers (e.g. MSCI1, Sustainalytics2, etc.), complemented by specialised providers (e.g. Carbone 43, Trucost4, Beyond Ratings5, etc.), fintechs (e.g. Four Twenty Seven6, Carbon Delta7, Truvalue Labs8, etc.) and consultants.
In particular, as a result of the low trust in company-reported information, a fintech ecosystem has emerged which aims to go beyond company-reported data sources. To do so, these fintechs are harnessing an arsenal of new technologies: big data based on asset-level information (facilities, power plants, etc.), natural language processing (NLP), the Internet of Things (IoT), satellite imagery, blockchain, and robo-advisors. If properly integrated, these new technologies and alternative data sets could give an investment firm a significant competitive edge. Although the proliferation of data providers can make an investor’s operating model even more complex, this can be mitigated by outsourcing the data management to banks. In fact, the custodian arms of banks are ideally placed in the investment value chain to provide the required infrastructure. As such the model of custodians is evolving from the ‘safe-keeping of assets’ to the ‘safe-keeping of data’, grounded in a multi provider approach. A race is taking place amongst them to evolve their capabilities and integrate this fintech and data ecosystem.
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