Data quality, availability, and usability remain major barriers to ESG development, panellists at AFME’s Operations, Post-Trade, Technology & Innovation Conference (OPTIC) agreed.
The panel, entitled ‘The ESG agenda and implications for technology adoption and post-trade processes’, looked at the problems facing post-trade processes as ESG becomes increasingly important to investors.
With regulation a main theme throughout the conference, the question of data quality, availability, and usability in light of new regulations was unsurprisingly a central element of the panel. Corinne Neale, global head of ESG applications at BNY Mellon, suggested that issuers are beginning to ask investors what data they want when making decisions about ESG funds, rather than focusing solely on data for regulators to compare funds.
Bill Stenning, UK head of public affairs at Société Générale told the audience to expect several iterations of how ESG is measured, with regulatory requirements and end-investor needs set to converge and diverge as these develop.
Larry Abele, chief investment officer at Impact Cubed, argued that the majority of ESG ratings are “useless” for investors, with the impact that the investment will have on the company presented together with the impact that it will have on the wider world. As a result, data is often misleading and leads to confusion in industry debate.
He went on to advocate for the “unbundling” of E, S, and G, explaining that the three do not always go hand-in-hand; a positive social impact may lead to high ESG ratings, despite a simultaneous negative environmental impact.
The lack of stable data was highlighted as a concern by all panellists, with Stenning questioning how investors are expected to keep up with shifting “green” measures. Neale added that, according to BNY Mellon investor surveys, approximately 40 per cent of investors often do not trust the ESG data they are given, further confusing the investment process.
Despite the panel’s agreement that data integrity is a significant problem for the ESG agenda, Abele said that firms were “hiding behind data issues” and using them as an excuse to avoid taking action.
Looking at the developments that the industry needs, Stenning argued that further regulation was needed to drive momentum on an institutional scale. He added that this would be helped by the public profile of ESG, with its recent growth accelerating regulatory development.
Neale emphasised the importance of finding a way to report performance in light of sustainability concerns, once again bringing up the issue of data availability and comparability.
Taxonomy was also raised as a concern, with a lack of standardisation once again proving a stumbling block. Neale pointed out that opinions and interpretations of data will differ between companies, regulators, and investors, and so a single taxonomy would not be practical. She proposed instead that existing taxonomies should be compiled into a “taxonomy of taxonomies,” with different approaches and levels of granularity made comparable.
Looking into the future, the panellists were asked whether ESG would last longer than its predecessors. Their answers were positive, and followed Abele’s earlier comment that although there is still a long way to go, “we are leading in the right direction, slowly — we are creeping along”.
