Joao Sousa Dias, Sales Director

It seems there is nothing hotter in investing today than ESG. While long considered a “tick box” activity, environmental, social, and governance factors have taken centre stage in recent years amid pressure to address issues such as climate change and diversity, as well as societal changes spurred by generational transition. Among investors, though, the catalyst with the biggest impact is the mounting evidence that accounting for ESG factors can improve returns.

“Incorporating ESG analysis into the investment process can add between 50 and 100 basis points per annum to returns,”Arabesque’s Andreas Feiner quantified in an interview with Eagle, adding that it: “imparts a slight reduction in the overall risk”. The numbers support the narrative that impact investors have been making for years. Companies with high ESG standards are likely to be better run, more resilient to changes in regulation, and less susceptible to being fined or suffering reputational issues over the long-term.

That’s the good news for investors. And it helps explain gravitation to socially-responsible investment strategies, as some €19.2 trillion is committed to sustainable strategies worldwide, according to the Global Sustainable Investment Alliance. Europe leads the way in this, accounting for well over half (57%) of professionally invested funds employing sustainable strategies globally. The bad news, however, is that ESG can be a labour-intensive pursuit for firms that don’t have their “data house” in order.

According to the consulting firm Opimas,total spending on ESG data will increase by around 48% in the next two years. Asset managers and asset owners alike are looking to incorporate ESG data to drive both investment decision-making and investment analysis. Furthermore, while ESG factors have traditionally been the preserve of equities, increasingly ESG-based fixed-income indices are emerging. As a result, the demand for ESG data has never been higher and will only continue to grow.

Meeting this demand is easier said than done, however. The availability of data is scarce with vendors playing catch-up as ESG strategies multiply. To fill this void, a range of heterogeneous ESG data services have been introduced, yet standardisation—and, more importantly, standards—have yet to materialise.

This is no great surprise, since the regulatory environment is still developing and ESG measurement is still in its infancy. As Andreas Feiner points out, in the last two years regulators have introduced nearly 300 different rules focused on sustainability and corporate governance. While this is likely to improve ESG reporting—and provide greater opportunity for investment decision makers to identify metrics that deliver outperformance in the longer-term—in the short-term, it holds back standardisation.

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As investment firms turn to data to help inform and improve investment and operational decision-making, they need to take a logistical, rather than tactical, approach to data management.

Marc Rubenfeld, Head of Sales EMEA

Evidence-based management has become the new normal across businesses as organisations in every sector are looking to improve decision-making and, ultimately, the client experience. This isn’t necessarily new, but what has changed is that today they’re leveraging facts and data instead of relying purely on the gut instincts of their workforce. This has been made possible because technology has evolved to a point where the client experience can be substantially improved by utilising and combining data in new and unique ways. For example, Uber has combined lots of different types of data together to create an entirely new client experience and business model.

At a high-level, this has created a new breed of organisation: the data-driven organisation. A data-driven organisation fundamentally relies on data to conduct business and optimise the client experience. They typically display several characteristics, including a relentless focus on measuring results and continuous improvement, coupled with frictionless self-service capabilities available to clients. To achieve these characteristics, the value of data must be baked into the organisation’s DNA.

Organisations will need to become data-driven if they want to remain competitive. Like countless technological advances in the past, if your organisation does not embrace the potential of data, it will begin a painful journey to irrelevance. Imagine a business that did not embrace electricity or the telephone; this is the same prospect facing businesses that fail to embrace data today.

The investment industry is no different; firms are more focused on data than ever before as a means to rethink both the client experience and how to perform day-to-day business functions. Specifically, investment managers are undertaking transformation programmes to put data at the heart of their organisation in order to realise the benefits of being data-driven.

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