- Gordon Tveito-Duncan
Asset managers: The no.1 remedy for when ESG regulations give you a headache
SFDR, TCFD, UN SDGs… getting your head around ESG rules and regulations can be headache-inducing. There are understandable frustrations surrounding ESG at the moment, to name but a few:
Lack of standardisation: ESG frameworks and regulations vary across different countries and regions, and there is currently no globally accepted framework for measuring and reporting ESG performance.
Lack of regulatory clarity: ESG reporting frameworks usually leave you scratching your head. It’s hard to understand the specific requirements when they often aren’t clearly defined or communicated by their creators - this has led to a wide divergence amongst funds labelled as “Article 8” as per SFDR.
Data availability and quality: Gathering and analysing ESG data needed to comply with regulations isn’t easy when the data is often not readily available or of high quality e.g. biodiversity metrics for SFDR.
Integration with investment processes: Incorporating ESG considerations into investment processes requires a significant amount of research and analysis. Who has the time? New rules also mean you’ll need to re-evaluate your investment strategies to take ESG factors into account.
Risk Management: Incorporating ESG considerations into investment decisions does mean that you now need to monitor companies within your funds to manage any ESG risks. This includes both internal risks such as deteriorating employee satisfaction and external risks such as climate change threatening supply chains.
So what’s the most essential thing you can do to minimise your annoyances, keep on top of ESG regulations, and make smarter fund decisions - without it taking a huge amount of your time?
Invest in an analytics tool that can gather, analyse and report on ESG data, taking into account ESG regulations, past and present. And no, this doesn’t have to cost a bomb when you understand exactly what features your ESG analytics platform needs to have. Here are a few features to look out for:
Transparent ESG scores that you can dig into to see how a company performs on individual E, S and G factors as well as overall.
ESG scores with a history of at least two years but to really understand trends and make predictions, your platform should have historical ESG scores that go back at least ten years.
A platform that can collect, store, and analyse large amounts of ESG data from various sources (one source is not reliable), allowing you to quickly and easily access the information you need.
While you may like hunting around, it would be silly of us not to point out that our analytics platform does all of the above. We combine both structured data (e.g., carbon emissions) and unstructured data (e.g., processing the news for 17,500 companies that we cover and highlighting the latest ESG controversies in real time) to give you the full picture.
How else can you stay ahead of the game with ESG regulations to make better fund decisions?
Anticipate ESG regulations by monitoring developments in the sustainable investing space, including regulatory changes and guidance from organisations such as the United Nations, the European Union, and the SEC. You can also keep an eye on standards-setting organisations such as the Global Reporting Initiative (GRI), and the IFRS Foundation.
Stay informed about ESG-related developments by attending conferences and workshops, reading industry publications, and following relevant social media accounts.
Engage with stakeholders, such as investors, regulators, and academics, to gain insight into the latest thinking on sustainable investing and regulation.
The remaining three suggestions are important but won’t make your role as easy as having access to reliable ESG data. It’s vital if you want to keep up with ESG regulations, make more informed investment decisions, ensure compliance, manage risks, and encourage sustainable and responsible business practices. Our advice: Get yourself an ESG analytics platform and put down the paracetamol.
Did you know we offer a free demo of our analytics platform and a free trial?