Navigating Data Management in the Face of Evolving ESG Regulations
March 31, 2023
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As asset managers and asset owners navigate the complexities of the current market environment, there is no doubt that environmental, social, and governance (ESG) data is a driving force for change. It's no longer enough for firms to try to incorporate ESG; they need to prove it with the data.
The demand for ESG data has grown drastically, leading to a significant increase in the number of data providers in the market. However, this has also created a fragmented data environment that can be challenging for asset managers and asset owners to navigate.
ESG compliance updates and challenges
The regulatory environment has made a considerable impact on product manufacturing and go-to-market strategies. With such a fast-moving environment, firms seem to be more reactive than they were even a year ago, with the desire to be led by the regulation.
The EU Taxonomy will become the standard for all global sustainable taxonomies. This regulatory situation is also creating a model that all firms must meet, making it a new political and economic framework that could deliver massive economic reform. However, currently, the burden of reporting on the EU Taxonomy and the SRS Framework could impact company registration and operational locations due to the cost of implementing them.
Asia and Australia
Hong Kong, Singapore, and Japan are already operating under sustainability regulations and defined required standards for listed entities. Australia’s financial regulator is taking a low-touch approach, requiring climate-related financial risks to be disclosed as part of existing obligations to disclose material risks, using TCFD Reporting.
Global ESG reporting
The next 3-4 years will see the building of global ESG disclosure regulations, with 20 countries signed up already. Global exchanges are currently working out how they can provide the right level of reporting or how to get listed companies to provide the right level of reporting.
The Data impact of market changes and ESG regulation
Asset managers and asset owners have diverted their focus from building and delivering ESG products that would deliver increased flows. Sustainability terminology has been used with abundance across the industry for the past 10 years.
Now the conversations are far more about greenwashing and the threat of public backlash. There is a shift to pull back on the use of generic sustainability marketing terms, to improve the sustainability of these products with a far more quantified approach.
Breaking down silos
With so much uncertainty in the market and the regulatory environment, data professionals in these industries need to find ways to manage data effectively. In this context, the need for enterprise-level solutions to break down silos between areas, such as equity and fixed-income desks, for example, has become increasingly apparent.
This can help to ensure that all areas of the business are working together towards the same sustainability goals, rather than working in isolation. To manage data during this period of evolution, it is crucial to engage multiple data providers to meet the breadth of demand for ESG data.
Creating a single source of knowledge
In addition, analysts are now having to engage with compliance to ensure that their internal evaluation metrics adhere to the spirit of the regulations, as well as the letter of it. With multiple sources, data collection, and reporting methods, alongside missing data, it is becoming an increasingly complicated balancing act to provide a clear and comprehensible articulation. This is where Rimes is helping manage and understand that data, to provide a single “golden” source, creating consistency across the business.
Key action points:
- ESG data is a driving force for change, and with data sets being so new, it’s far more of a challenge than any other area..
- The demand for ESG data has grown significantly, leading to a fragmented data environment that can be challenging for asset managers and asset owners to navigate. Although we are currently in a situation where there are limited data sets or a lack of visibility, that data is coming. And will come in such a massive abundance that it will be overwhelming for those without the data technology and infrastructure to manage it.
- Solutions such as Rimes ESG Data Services are transforming ESG data, creating a high-quality, reliable “golden” source of truth. Decarbonizing the economy has no quick fix, and we are just at the beginning.
Don't let the complexity of ESG analysis hold your business back. Partner with Rimes and take advantage of our 25+ leading ESG data partners to gain valuable insights into ESG and climate data, equities, and corporate and sovereign fixed income. Contact us today to learn more and start driving positive change through sustainable investment practices.
By Elisabeth Seep, Head of Sustainable Investing Products