Lack of management interest and of credible data are the two main barriers to adopting ESG investing policies and initiatives, according to Clearwater Analytics research.
Less than half of asset managers, pension funds and insurers do not have ESG investment policies in place, despite policymakers growing focus on climate change, a Clearwater Analytics survey found. Clearwater said the study was global but that the majority of respondents were based in the US.
Lack of management interest and of credible data, particularly in private markets, are the two main barriers to adopting ESG policies. Meanwhile, 30 per cent of respondents said they needed to invest in technology solutions that could better handle ESG data. The survey polled 190 asset owners and asset managers representing more than $12tn in assets under management.
Gayatri Raman, president of Europe and Asia at Clearwater Analytics, said: “Before anyone can incorporate ESG factors into their investing strategies, data needs to be highly available, high quality, and easy to track. Only then will investors be able to fully integrate these initiatives into their investment process.”
A third of respondents without a clear ESG strategy cited the lack of available and credible data to evaluate investments on an ESG basis as the main barrier to establishing a strategy. Meanwhile, 11 per cent claimed ESG strategies delivered lower returns than traditional approaches.
The underlying data that feeds into ESG models and scorings needs to improve in terms of quality, relevance, availability and comparability – and would therefore require mandatory standardised reporting, said a London Stock Exchange Group spokesperson. These improvements would reduce the need for estimations and make scoring systems and outputs more comparable.
Chris Chancellor, vice president at Broadridge, a financial technology company working with asset managers, said transparency was the key area of improvement. “Part of that is data, but it also means being able to clearly describe what their ESG approach is, and to have content and insights that are easily digestible and can be used right through the value chain down to end investors,” Chancellor added.
Provider proliferation
The survey found that 44 per cent of investors use multiple data providers, with asset managers relying largely on MSCI and Sustainalytics, while asset owners tend to use a more varied selection of vendors.
More than a dozen data providers were cited across all respondents, including S&P, Moody’s and Refinitiv.
Diana Rose, ESG research director at data provider Insig AI, said: “Good data is hard to come by, let alone find meaning in, and there was a certain appeal of the household name ratings agency having done all the hard work.”
At the same time, she said, companies are struggling with budgets, technology requirements and resources to establish their own management systems to measure and report the information they are being asked for, in line with frameworks they are either committing to or being required to comply with.