Tackling the ESG Data Management Challenge at Scale

The increased importance of environmental, social and governance (ESG) issues for investors, regulators, and other stakeholders and demands for greater transparency have reshaped requirements for analytics and disclosures. Financial firms are increasingly focusing on their ability to access, manage, store, and analyze ESG-related data due to the volume of information now needed to meet stakeholder and compliance requirements. They are looking for ways to break down data silos, automate complex processes, and extract value from data assets.

There are three main factors driving firms to reassess how they manage their ESG data:

1. The elevation of ESG to an enterprise-wide concern.

2. The large volumes of third-party data that need to be standardized and linked.

3. The roll-out of regulatory reporting requirements and standards.

ESG is now an enterprise-wide concern

Not long ago, ESG issues were the purview of dedicated sustainability teams that built models and maintained their own data for very specific purposes. Now companies need to gather extensive ESG details to support investment strategies, financial analysis, regulatory reporting, credit risk management and more to effectively evaluate overall risks and opportunities. ESG has become a cross-disciplinary area of responsibility, with large volumes of complex data that are beyond the bandwidth of standalone sustainability teams (32% of attendees for a recent webinar cited the number of sources and sheer volume of data as their biggest ESG data challenge). As a result, many firms see a growing need to create an internal hub of ESG data to provide consistent information, avoid duplication and reduce unnecessary costs.

This is not a new phenomenon; we have seen data use cases expand across enterprises many times in our 20+ year history of helping financial firms centralize and manage their data. The requirements for efficiency and scalability are the same, regardless of the type of data involved.

Extensive third-party data needs to be standardized and linked

Given the volume of ESG data that is needed today to support front- to back-office functions, firms rely heavily on multiple third-party providers that deliver disparate data in numerous formats. There are also many more differences across providers than for other types of data (e.g. credit ratings) because of the range of methodologies and opinions that come into play. During our most recent webinar, 50% of attendees said the lack of standardization across sources is the biggest issue they face when attempting to aggregate ESG data. The challenge is most acute for private assets, for which data standardization is almost completely absent. Having an enterprise-wide data hub that validates and reconciles data, as well as cross-referencing and linking it, has become essential for creating a single source of truth.

Regulatory reporting needs to be streamlined

The regulatory landscape for sustainability reporting is evolving, with new requirements, guidelines, and standards being introduced or revised to increase transparency and prevent greenwashing. In Europe, the Sustainable Finance Disclosure Regulation (SFDR) has been a game-changer, which has significantly raised the bar in terms of its expectations regarding data. The industry is now waiting to see what impact the UK's Sustainability Disclosure Requirements (SDR) will have.

Failure to make complete disclosures can lead to penalties and reputational damage. However, responding to each new reporting requirement one at a time is a time-consuming, laborious process. As a result, firms are beginning to think strategically about ways to implement a single infrastructure that is capable of addressing the data requirements of a wide range of regulations more holistically. They have come to the conclusion that making a strategic investment in a best-in-class data management strategy can open the pathway to longer-term success.

A new approach for ESG data management

We are helping firms accelerate their sustainability strategies, including regulatory reporting, by delivering an outsourced ESG data management service. We have combined the capabilities of our award-winning Enterprise Data Management (EDM) software, our extensive Sustainable1 datasets, our connections to other data vendors, and the expertise of our global team to create a unique service. You can now outsource your ESG data workflows to us; we will aggregate and manage data from multiple sources on your behalf and deliver a validated master record in the format and time required for use in your systems.

The combination of our ESG data, software solutions, and ESG/technology subject matter expertise is helping to transform the ESG data management landscape.