Barriers to ESG in the Asset Management industry – May 2024

A year ago, we wrote post on Linked In called “Barriers to ESG in the Asset Management Industry.” It was a brief article, but it talked about three distinct key areas that were (at the time) key factors inhibiting the progress of ESG. We thought that (one year on), it would be interesting to revisit those three items, and talk about the progress that has been made.

The three areas we discussed a year ago were: -

1. Data quality and availability
2. Lack of standardisation
3. Conflicting definitions

It is fair to say that all three are still barriers to ESG, but things are changing. There is now, almost universal awareness of all three as issues, and effort is being made by multiple stakeholders to make improvements.

1. Data quality and availability: Last year we said “One of the main challenges for asset managers is accessing high-quality, reliable, and standardised ESG data. Without consistent and reliable data, it can be difficult for asset managers to accurately assess the ESG performance of companies and make informed investment decisions.” Quality and reliability are improving, but we are not there yet. Standardisation remains an issue. And all of this is subject to the assets you are looking for data on, and depends on region, asset type, and how mainstream that asset is.
2. Lack of standardisation: Last year we said. “The lack of standardised ESG reporting frameworks makes it difficult for asset managers to compare ESG performance across different companies and industries. This can result in inconsistent ESG assessments and lead to challenges in making meaningful ESG comparisons.” Again, there has been some improvement, but where we are today still falls short of the industry’s aspirations, and this is an issue that applies globally.
3. Conflicting definitions: Last year we said. “There is no standard definition of what constitutes ESG, and different stakeholders often have different interpretations of what it means. This can create confusion and inconsistency in ESG assessments and make it difficult for asset managers to effectively integrate ESG principles into their investment strategies.” This is possibly the area where the least progress has been made. There is still no formal agreed definition of the word “sustainability.” And it is not just managers who are struggling with understanding these conflicting definitions. Consumers too are also finding it hard to discern between the various offerings.

So, whilst it is encouraging that some progress has been made, that the industry is now very much aware of the issues, and that there is some vision in the future for solving each of these three barriers, the solutions it seems, remain some way off. A year is a long time in asset management, but in ESG, not a great deal has changed for some of the key challenges.

Talk to us to learn from our experience of handling ESG data challenges to build viable ESG Products.