Funds Europe – The reliability and standardisation of data is a well-identified friction within ESG investing. Can you explain why?
Powdrill – On governance, there’s a simple answer and there’s a difficult answer. The simple answer is that the governance data is there when it comes to executive pay or board structure, say. But if we’re looking for more meaningful information about the board’s culture, that’s obviously much harder to get a grip on.
We’ve been trying to dig into the ‘S’ a bit and get a rough sense of whether a company is a decent employer or not. There are so many different elements to look at and so I would say we are still in the foothills of this issue.
Dreher – The main question is about the availability of data. With many clients, we have a discussion which follows a similar pattern, for example, ‘I just signed up to one of the data providers. We get everything. We have a huge quantitative model in place that pulls everything together, gives a score, and creates a perfect portfolio.’ To which we say, ‘You’re right, to some degree. But you need to have your own ESG methodology in-house. What is your view on sustainability? How do you measure it and do your own analysis?’. In other words, there are underlying scores that are sourced from data providers, but what a fund manager does in addition to that is where the added value lies for their clients and what they are looking for from their portfolios.
One thing I’m always surprised by is that most people don’t appear to know there are so many differences in the methodologies used from one data provider to the next. I think, therefore, that some people are taking the issue of data too lightly.
Harper – Is it really enough for a professional investor to say to a client that they selected the fund because it had five stars from one of the raters? There has to be a deeper dive than that, whether by the management company that looks after the products, or the wealth manager that has built the portfolio.
There’s an industry problem and we’ve all seen it; it’s that sustainability reports are very difficult to pierce into and get underlying information from. Thanks to the EU taxonomy, people are now beginning to input data better. It’s not a perfect model and the access can be expensive, though. I think everyone has the right to the data, and then how you use it is up to you. Our job is to provide the aggregation.
Cabie – As an ESG investor, when we assess and compare companies, a lot of time is spent on understanding how reliable and comparable data is before we can take a decision on a course of action. Standardisation of data is a most important point that must be tackled in the near future.
Piffaut – There are some extraordinary NGOs and other organisations collecting and providing data on companies, although the number of companies that NGOs cover is very often quite small. For an asset manager like us, we often use NGO data in order to support dialogue with companies, for shaping our qualitative insights and our engagement with them. We use it less for assessing performance due to some of the difficulties in comparability.