Prepare for an ESG Data Deluge

I attended LGIM’s excellent Resilience through Responsible Investing Webinar, where a Fund Manager described the process of dealing with ESG & Sustainable outcomes as a “data deluge”. I also learnt that ESG scoring is different to Credit Ratings as there is much greater divergence (see below).

You manage what you measure but with Sustainable & ESG Investing, then “it depends” on whom you choose to set the measures. There are already over 30,000 ESG Indices! What to do? Well, firms are increasingly predicting that their favoured solution is to take as many sources as they can, which they combine into a consolidated single source of truth, covering both external and internal classifications. As new data sources emerge and datasets evolve, then these all need to be continuously incorporated and integrated so that they can be made available for multiple purposes. The net result will be a huge increase in data usage for most firms. An opportunity or a problem.

As a big fan of VENN diagrams, I really like the SPICE model (see below). Not only does it show the 5 pillars of shared value involved in Stakeholder capitalism, but it is also a great visual reminder of the sheer scale of data that needs to be dealt with. Each of the circles involves a significant volume of data, both structured and unstructured. However, collectively the 5 circles represent an Olympic sized challenge!

For the foreseeable future, the “data deluge” will be the new norm. Google, Microsoft & AWS offer proven patterns and products, but “roll your own” solutions are non-trivial. My conviction is that firms should prioritise “insights over infrastructure”, leveraging modern commercial products wherever possible and focussing their talents on the gaps not well covered or better still enabling deep insights. To be a player and better still a Leader in ESG & Sustainable Investing, then there is a lot of data to sort out…

• Master data management. Ideally using pre-built connectors to the ESG data providers and having the complex data analysis and mapping already figured out.
• Delivering the many new ESG reports as well as being able to supplement existing reporting solutions and/or integrations with ESG data.
• The ability to leverage corporate data assets and being able to rapidly plumb in other datasets to seek new data driven insights.

I believe that our High-Level Conceptual Architecture (see below) is a blueprint for how to tackle ESG & Sustainable data needs. Firms need a modern Digital Supply Chain, that delivers an integrated solution that has been designed to evolve and adapt to meet new opportunities and needs.

A key decision for many firms is “how” they respond to the data choices that are integral to ESG & Sustainable Investing. Due to commercial and deadline pressures, some key risks need tackling:

• The risk is that firms will have to implement multiple tactical & siloed solutions, likely based on Email & Excel, creating a toxic legacy that will be a drag on future ambitions and will create new operational and regulatory risks.
• The risk is that firms miss the opportunity to be a Leader in Sustainable Investing because they fail to deliver Digital Services for the future that improve innovation with key 3rd party partners to create differentiated outcomes.
• The risk is that firms do not use foundational components that can scale and adapt rapidly to future needs as far more evidencing and reporting will be demanded by customers, employees as well as multiple regulators.

My conviction is that Email & Excel are the picks & shovels of the past and whilst still highly valuable, for the new Gold Rush that is ESG & Sustainable Investing, then there are better tools for the jobs to be done.

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