ESG Data Limitations Challenge EU Deadline04.29.2020
The insufficient availability, quality and reliability of publicly available environmental, social and governance data will challenge the timeline for the European Union’s new rules.`
The European Fund and Asset Management Association said in a report that issues with ESG data on investee companies will hamper the ability to meet the requirements of the roadmap for green finance proposed by the EU.
“Given the ESG data challenge, which is very likely to persist for a while, the current timeline for the application of new rules poses a serious challenge,” added EFAMA.
— EFAMA (@EFAMANews) April 28, 2020
Market participants have to disclose the proportion of their portfolios aligned with the climate mitigation and adaptation objectives specified in the taxonomy from 1 January 2022. However the first reports by investee companies can be only expected in the course of 2023, for the financial year 2022.
“Even if the disclosure by investee companies were to be expected to be published in the course of 2022, this still creates a difficult situation as financial market participants need such disclosures before they can produce their own,” added the study.
The association therefore welcomed the Commission’s intention to perform a thorough impact assessment before finalising the draft delegated acts.
EFAMA also suggested that the provision of a public EU central database of regulated information and ESG information voluntarily provided by companies could help solve the problem.
“It would very much facilitate access to ESG data not only for investors, but also many other stakeholders (including civil society and academics) and various European and national authorities,” said EFAMA. “Besides addressing the needs of investors and EU and national regulators, such database would play an important public accountability role.”
Market for ESG data
The increasing demand for ESG data means the market could approach $1bn (€920m) by 2021 according to a report from consultancy Opimas. The study, ESG Data Market: No Stopping Its Rise Now, estimated an annual growth 20% for ESG data and 35% for ESG indices.
— Opimas LLC (@OpimasLLC) April 16, 2020
The authors, managing director Axel Pierron and analyst Anne-Laure Foubert, said asset managers are responsible for 60% of the spending.
“With the integration of ESG consideration into their fiduciary duty required by the European Union by 2021, asset managers will likely continue to be the main consumers of ESG data,” added the report. “Opimas estimates that asset managers could spend roughly $554m for ESG data by 2021.”
New and amended EU legislation is introducing significant sustainability and ESG related disclosure requirements. @ICMAgroup has today published an update memorandum on the EU’s sustainability disclosure regime and its latest developments. ⤵️https://t.co/YRrFNNYepa
— ICMA (@ICMAgroup) April 30, 2020
Northern Trust said in a statement today that it has enhanced its analytical capabilities to provide pension funds and other global institutional investors with heightened insights and transparency in an ESG Analytics Summary.
These analytics are generated by Northern Trust’s Investment Risk and Analytical Services group through combining the firm’s global custody asset information with data provided by information services provider IdealRatings.
Mohamed Donia, chief executive of IdealRatings, said in a statement: “The ESG Analytics Summary provides enhanced transparency to help investors avoid companies that pose a greater financial risk due to their ESG practices – as well as satisfy regulatory requirements and meet global standards.”
The summary gives investors a periodic snapshot across their equity and corporate bond portfolios against a range of ESG factors, the United Nation’s Global Compact principles and business activity flags. Investors can then track changes in a fund’s ESG profile over time, compare results on an absolute and relative basis, and compare asset managers.
Serge Boccassini, product lead, investment accounting and analytic solutions at Northern Trust, said in a statement: “ESG rules play a heightened role in global investor considerations, with institutions increasingly seeking to integrate sustainability factors into their portfolios. To achieve that effectively, it is vital they understand their investment risks.”
Upgrades enable hedge funds and asset managers to gain actionable insights quicker and more efficiently.
They will help investors identify companies committed to improving gender diversity.
Investors are seeking the tax efficiency, trading flexibility and cost benefits of ETFs.
US Department of Labor has allowed pension plan fiduciaries to consider ESG factors.
Goldman Sachs Asset Management agreed to pay a $4m penalty.