From Best Execution:
Data remains one of the top challenges and primary barrier to integration of environment, social and governance criteria, almost 60% of the 356 asset owners, managers and institutions, polled in the latest BNP Paribas annual ESG survey.
The report found the main obstacles were around data quality and consistency, inconsistent data across asset classes, conflicting ESG ratings and ineffective data for scenario analysis.
Measuring the S or social factors in ESG has proven to be the most difficult in data terms.
Market participants agrees. As Kifaya Belkaaloul, head of regulation at NeoXam, emphasises the problem is with the “lack of harmonisation and comparability of data currently.”
She adds, “In order to help investors and policy makers evaluate the performance of companies they invest in, the EU is amending NFRD (Non-Financial Reporting Directive). In the meantime, asset managers need to look for ways to normalise their data with standard models and mappings to comply with the regulatory changes as and when they come about.”
Overall, the BNP Paribas report noted that ESG is maturing quicker than predicted among its respondents which have an estimated $11.3 trillion (€9.6 trillion) in assets under management.
It said brand and reputation has overtaken returns as the main ESG driver for change, “spurred on by governments pushing towards meeting the targets set out in the Paris Agreement, new regulations, as well as COVID-19 raising individuals’ social conscience”.
Comparing 2021 levels of ESG portfolio integration with those of two years prior, the report said not one respondent in 2019 envisaged a future where 75% or more of an investor’s portfolio would integrate ESG by 2021.
However, despite the progress, 66% of respondents currently incorporate ESG into less than half of their portfolio, while less than 40% have made a public commitment to align all or part of their portfolio with a 2050 net zero goal.
Around 36% of those surveyed have taken initial public steps but have not yet begun allocating capital to a net zero emissions objective, while 27% have made no such climate commitment at all.
In addition, less than half of European asset owners and managers understand the EU’s Sustainable Finance Disclosure Regulation and what it means for their organisation.
This is attributed to the phased rollout by the European Union with the most significant enforcement due to take place next year.
It also notes that institutional investors await details of the final requirements, which are still being developed.
Florence Fontan, head of company engagement at BNP Paribas Securities Services, says: “The industry has come some way since our first ESG survey in 2017. Asset owners and managers are now more likely to embed ESG within their organisation and strategic decision-making.
She adds: “They’re also increasingly embracing thematic investing. This should stand the industry in good stead to accelerate asset allocation to ESG strategies, an urgent necessity as warnings on climate change grow starker.”
