Beyond ESG Ratings - Conversations That Matter
ICS was recently interviewed by TSAM Digital together with ESG data provider Matter, on the challenges of ESG data and moving beyond standard ratings.
Below is the video and transcript of the interview covering 3 areas:
The challenges of working with ESG data
The business impact of implementing ESG data beyond ratings
How ICS and Matter work with clients to help them solve these challenges
Christian Eriksen, Commercial Director, ICS
Lise Pretorius, Head of Sustainability Analysis, Matter
Andrew Kerry, Director, Foxon Media
Part I - The challenges of working with ESG data
Andrew: Hello and welcome to our discussion today. We'll be focusing on the challenges for investment managers, with regards to data and reporting on ESG. We're going to be discussing with these two leading commentators of the industry. Today, I'm joined by Christian Eriksen, who is the commercial director and co-founder of Investment Control Systems and Lise Pretorius, who is head of sustainability analysis at Matter. Christian and Lise, if you wouldn't mind giving me a quick introduction to both of your companies and services that you offer.
Christian: Yeah. Thank you, Andrew. so, ICS is an investment technology firm, a global firm with offices in Sydney and in London, and we help investment organisations manage their data more efficiently. The way we do that is, via our cloud-based platform, ATHENA . And this one is purpose-built for the buy-side industry, supporting both asset owners and asset managers. ATHENA is a comprehensive platform for investment data management and investment reporting, and it is offered as a true SaaS solution, combined with a modern approach to implementation. So our aim is essentially to deliver tangible results for our clients within weeks, rather than months or even years.
Lise: Matter is a FinTech company, specialised in sustainability analysis for a range of international clients. And we do things differently in two ways.
Firstly, alongside company reports or data, we harness technology and a wisdom of the experts approach to integrate insights from NGOs, think tanks academia while operating at the forefront of critical issues like human rights or climate change. And then we bring this data to life through science-based and multi-stakeholder frameworks rather than black box methodologies.
And secondly, as a FinTech, we deliver these insights to our clients when and how they need them. So either via API, via integratable elements or via dashboards where clients can upload portfolios and explore sustainability in science, in an intuitive and transparent way.
Andrew: Brilliant. Thank you very much. Christian, let me start by asking you, what do you see as the main challenges for investment managers with regards specifically to data and reporting on ESG.
Christian: Yeah. Yeah, thanks Andrew. So, there are definitely a few challenges that we see in this area. and there are similarities between the asset managers and the asset owners, but of course there also differences. But first of all, the common thread for both groups is around regulation. So top of mind for many organisations at the moment, but we also understand it doesn't affect everyone out there right now at least. But it certainly does help to drive a more standard reporting for ESG, which is a good thing.
If we look at the two different groups separately, we definitely see different challenges that they want to address with better ESG data. So for example, for the asset owners or the institutional investors, they want better data to actively monitor the external managers on their mandates. So they can have engaging and more productive conversations with their managers.
"If you're a pension fund, you might want to prove to the members that, you know, compared to the benchmark, you can deliver the same or even better results, but have a lower carbon footprint. So how do you do this? You need better data, and his are some of the things they're struggling with, how to communicate this to their members."
For asset managers, the kind of challenges we've seen there is that they want to eliminate any sort of material concerns that their investors have about greenwashing. So showing that they are walking the talk, so to speak, right . But of course they also want to use this data to attract investors to their green funds, and having data to back this up is important to them, and in fact, critical to attract the right investors in the market.
So all these challenges, this is where, you know, the next level of ESG data, and of course combined with good data management practices can help these organisations.
Andrew: And I suppose now going to you Lise, how do you see this, what do you see as some of the main challenges, with investment managers in regards to that data and reporting on ESG that Christian's kind of touched on.
Lise: There are three main challenges that are relevant for our clients. The first is that there are just high expectations on financial institutions to prove that ESG strategies are really getting to the heart of sustainability issues, which comes with high expectations for the types of data and methodology that is used. So investors and regulators are now asking questions on the basis of publicly defined models, such as science-based targets or taxonomies. And this requires access to data at a much more granular level.
"And secondly, at the same time, the range of issues important to investors is growing in both depth and complexity. For example, the need to move beyond climate, to understand our impact on nature and biodiversity and ESG ratings defined by proprietary methodologies, which are themselves uncorrelated, can't really solve either of these issues. And so investors are looking to get more granular, more trusted and more transparent methods."
And then finally these regulatory and stakeholder reporting requirements mean that investors need more automated and streamlined solutions for ESG reporting.
Part II - The business impact of implementing ESG data beyond ratings
Andrew: Great. we introduced this conversation with regards to the challenges around data and reporting when ESG, again, coming back to you Christian, could you explain the business impact of these areas more specifically.
Christian: Yeah. totally. so look, it's not all bad news. In fact, we see plenty of opportunity, working with the right ESG datasets. I mean there's countless research in the market and the industry pointing to the growing pool of funds being invested into green funds, impact investment funds, sustainability funds, et cetera. And this will only grow. I mean, in fact, Deloitte, they do a global millennial survey, and if you look into that, the biggest concern for millennials and GenX is climate change and protecting the environment, above anything else. Above crime, terrorists or anything else.
"The biggest concern for Millennials and GenX is climate change and protecting the environment, above anything else."
So again, this is pointing to more growth in this space. So as I said, it's not all bad news, but it does require you to act now, as it is also a very competitive space, if you want share of the wallet.
So look, if we look at sort of the transition of usage of data in ESG, in most organisations they've been used to using ratings for some time now, predominantly as a tool of screening. But to move to that next level and starting to have more meaningful conversations, backed by data, as well as being able to comply with regulation, of course, this is where there will be some impact on businesses. No doubt about it. And it will not only require organisations to identify the right data provider, or providers, to acquire the level of data that's needed, but also being able to assess how do these data providers deliver the data, how can we integrate it with your existing investment data and then quickly move to start extracting value of this new combined dataset that you now got your hands on.
So this can be quite a daunting task, as most, organisations, they are also dealing with normal BAU activities and other projects. Now, for big organisations with large project teams, just waiting on the bench, pulling out three to five FTE's is not a big thing for them, maybe. But of course, for smaller organisations, you know, this can be, you know, a significant project for them. So look, luckily there is help to find, and I would strongly recommend taking the time to have those conversations with potential partners, even just to understand what is available in the market and perhaps getting a bit of advice, on the journey, so at the very least lessen that impact on the businesses.
Part III - How ICS and Matter work with clients to help them solve these challenges
Andrew: And that leads us nicely to, I suppose, Christian asking whether you could give me a bit of a high level overview about how ICS can support firms with data and reporting challenges generally, but then also looking at which of those foundations are applicable to ESG. and then I suppose, tagging in how you've supported clients that you've worked with in this.
Christian: Yeah, sure. So, I mean, we look at data capability and data management. We look at that in three core pillars when we talk about that. So number one, the first pillar is being able to aggregate all the data. So obviously being able to integrate with all the data sources, but when you start to aggregate all your data, you got to have a pretty solid investment data model, that is also able to be expanded to cater for these kind of datasets. So having a platform that can very easily do this is important. Once you've aggregated all your data, you got to get your data to a level where you can trust it. And so being able to validate your data, validate the sources of the data is important to the users. And finally, once you have a single source with trusted data, you got to be able to give your users access to it.
You've got all these good data, so you've got to provide the tools to the end user, so they can very easily get access to this, start to have those conversations using the data.
And so this is very much the focus of ICS. That's what we do. That's how we drive these conversations to enhance the capabilities of our clients. And that is absolutely what our platform ATHENA is there to help them do.
Andrew: Lise, if I can come back to you in terms of Matter, how do you work with ICS and provide the expertise against some of the challenges that we've been discussing in the course of interview.
Lise: So it's clear that the challenges lie both in the quality and scope of data and the need to flexibly respond to different analysis and reporting needs, but also the ease of integration into systems, that financial institutions already using.
"For Matter, working with best in class investment management systems allows us to provide solutions for both. So for example, working with ICS, we are integrating sustainability portfolio analysis along different regulatory reporting frameworks, in particular the SFDR."
And we also want to add sustainability information to the systems clients are using, to ease the integration of metric possible to reduce the complexity and manual processes for clients. But perhaps most importantly, to actually give them the sustainability insights they need to really shift their portfolios in line with sustainability outcomes.
Andrew: Thanks very much. I mean, Christian, what would you say to anyone that's watching this video right now and might be experiencing some of the challenges around ESG in terms of the data and reporting that we've covered during the course of this conversation what would be the best way to contact you, to find out more.
Christian: Yeah, Andrew, so look, I would certainly recommend to, as I said before, get in touch with, with us. You'll see contact details on the screen. I mean now there are quite a number of modern tools out there, there are quite a number of experienced partners to talk to. And as I said before as well, you know, start those conversations now. As I always say, there's pretty much nothing to lose. And so, I would reach out to start the conversation. If nothing else, you'll walk away with more knowledge about your options and potentially also, how you could help improve your business.