Asset managers have an ESG data problem

Without standardization, institutional investors have some trouble incorporating the data

Big investors and asset managers are struggling with how to use a growing volume of ESG data that lacks a common format.

The majority of asset managers (89%) and asset owners (78%) cited data collection and analysis as a leading issue in being able to incorporate ESG into their investment processes, according to a whitepaper issued on Wednesday by Northern Trust. Along with that, 82% of asset managers and 77% of owners said that securing and normalizing the data is problematic.

The paper is based on results of a survey the firm sponsored earlier this year with PwC. It included responses from 80 institutional investor clients.

Other top concerns cited by most institutional investors were improving ESG transparency and reporting; complying with ESG regulations; identifying and managing ESG risks; and integrating ESG data into investment decisions.

“Sustainable investing is the driver behind a number of initiatives that require greater monitoring and analysis of material risks and disclosures,” said Jeff Greaney, lead product manager of accounting, analytics and derivatives at Northern Trust, in the company’s announcement.

The firm has added services to help clients meet ESG responsibilities, Greaney noted.

Currently, companies report ESG data in different ways. But forthcoming regulations, such as the SEC’s climate-disclosure rule, could bring standardization to much of that reporting.

Most institutional investors (76%) are incorporating ESG considerations in response to stakeholders’ expectations, according to Northern Trust. Just over half, 53%, do so in light of their corporate values, while 49% include ESG to pursue higher returns, the survey found. A smaller proportion, 45%, did so because they felt it was necessary to meet regulatory requirements.