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Uplifting ESG Data Management Capabilities for Investment Management

The global buy-side industry is witnessing a growing demand for ESG investing while also grappling with rising regulatory scrutiny. To translate these challenges into opportunities, investment firms need to improve their ESG data management capabilities. 

ESG data management refers to the ability to collect, store, analyse, and distribute ESG data. By improving their existing data processing capabilities, investment firms can better understand the ESG risks and opportunities of their investment portfolios, make more sustainable investment decisions, and comply with the regulations to ride the next wave of ESG asset growth.

There are three main benefits of industrialising ESG data management capabilities for these investment firms:

  • Improved investment decision-making: ESG data management allows investment firms to assess the long-term sustainability and resilience of investment portfolios. In the pursuit of alpha, Investment Managers like to scan beyond traditional financial metrics to evaluate companies' sustainability practices, social impact, and governance standards. ESG data provides valuable insights into these non-financial aspects, allowing these firms to make more informed investment decisions and manage risk effectively. By integrating ESG factors into their investment analysis, investment firms can identify risks and opportunities associated with environmental, social, and governance issues. This enables them to allocate capital to companies with strong ESG performance, reducing exposure to potential ESG-related risks and enhancing the long-term value of their portfolios.
  • Compliance with regulations: ESG regulations are becoming increasingly stringent. By improving their ESG data management capabilities, investment firms can ensure that they are compliant with these regulations. Various jurisdictions have introduced or are considering regulations like SFDR, TCFD, EU Taxonomy etc., that mandate the disclosure of ESG information by companies. Investment firms need to collect, analyse, and report ESG data to comply with these regulations. Effective ESG data management systems ensure accurate and reliable data collection, verification, and reporting, enabling investment firms to fulfil their regulatory obligations seamlessly.
  • Transparency and accountability: ESG data management enhances transparency and accountability. Investors have also amplified their demand for transparency regarding companies' ESG practices. Investment firms need robust data management processes to track, measure, and report ESG performance accurately for both retail and institutional clients. Transparent disclosure of ESG data helps build trust with clients, attract socially conscious investors, and align investments with values and sustainability goals.

In this paper, we have taken a deep dive into the complex ecosystem of ESG data for asset managers and asset owners and unpacked comprehensive insights on:

  • Greenwashing for buy-side firms
  • Difference between ESG and traditional financial datasets
  • Current-state integration of ESG data into the front and middle office functions
  • Gaps and pain points in the current-state ESG data management process
  • Guidance on navigating the ESG data operating model barriers

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