A hot topic
“The spotlight is on ESG,” said Niresh Rajah, managing director, head of data, regtech and digital advisory practice at Grant Thornton. “The market is responding to public and regulatory pressure to move beyond traditional growth indicators. Financial services firms are seeking to better understand and justify their ESG positions, including existing and future investments, as well as trading positions. However, unlike financial reporting, which is standardised and focused on growth, corporate reporting on ESG and the underlying data required to report remains vague and complex.”
Data plays a pivotal role in ESG development to create flexible, robust, scalable and future-proofed platforms. As the business environment continually evolves, the insights data provide are key to ensuring the long-term success of ESG goals and platforms. When combined, an ESG data and analytics platform can minimise interpretation bias from humans, strengthen ESG strategies and metrics, standardise data and improve calculation models.
Laying the foundations
The first step for implementing an ESG data framework and ESG data platform is to identify the outcomes aspired by the organisation and then work backwards to pinpoint challenges and pressure points.
“A leading asset manager engaged us to help their ESG data management journey, covering areas such as building an ESG data strategy, improving ESG data quality, evaluating market data provision for ESG purposes and developing a minimum viable product for an ESG data and analytics tool,” said Rajah. “The key objective was for the firm to understand its portfolios ESG ratings and identify the underlying assets that influence those portfolios.”
The Grant Thornton team worked with the client to identify primary outcomes through in-depth workshops where the following factors were highlighted:
- The asset manager’s stakeholders (fund managers, senior management, regulators, company employees and customers) each have their own ESG perspective.
- The companies that the firm’s fund managers invest in each have their own ESG strategy to achieve their goals, impacting the client’s ESG rating. This rating is used by the data platform to provide insight into a company’s overall rating and its related impact on a given fund’s profile.
- ESG ratings can include diverse data points, meaning a solution must quantify information from each aspect: environment, social and governance.
- The client required assurance over these ratings with a view to supporting investments.
It must be noted that as ESG is a comparatively new space in a constant state of flux and evolution, multiple technical and business obstacles can be identified for individual clients. These can include scoring variations from rating agencies, greenwashing of ESG profiles, data quality concerns, data weighting concerns and the volume of data being amassed. An ESG platform solution must address these challenges and be able to adapt for other unseen and unexpected challenges for different sectors.
The ESG data and analytics screener
“To meet both internal and external needs of the asset manager, we supported the development of a solution – the ESG data and analytics screener – providing the foundations for a scalable, future-proof platform,” said Rajah. “This platform is an idea-generation tool assisting ESG product development in line with a firm’s requirements and to provide agile analytics.”
Grant Thornton’s technical, project and data management team collaborated closely with the client’s investment analytics group to enhance the platform for ESG scoring and screening assets and funds. This was followed by extensive partnerships and transparency between teams which cut development setup time. By applying existing specialist ESG, investment data expertise and client-specific and industry knowledge, the team was able to improve the speed and accuracy of ESG framework implementation across the organisation.
Despite this, ESG data is notoriously inconsistent, causing a headache for data point standardisation. “The collection, categorisation, analysis and scoring of ESG factors produces varying results, depending on the provider, meaning firms cannot rely on a single source of information,” said Rajah. “To address this, our platform produces ratings drawn from several third-party data providers of metrics and benchmarks.”
To ensure the long-term survival and optimal benefits, organisations must have a robust ESG data strategy. This will allow for the continuation of development regarding new and matured data and analytics demands.
“We recognise that sustainability requirements will continue to evolve, meaning our platform needs to be adaptable and scalable,” said Rajah. “The solution we developed allows several key workstreams to be brought together, including the ESG data strategy, work on ESG book of records and the target operating model.”
Where to begin?
Organisations operating within the world of finances face critical risks and bountiful opportunities, which makes ESG incorporation essential in driving data-led decision making and improving relations with internal and external stakeholders. Thanks to the flexibility allowed by benchmark interpretation, the frameworks being developed can be catered to each business across all sectors and specialisms.
Rajah explained that the development of the Grant Thornton ESG data and analytics screener was concocted in such a way that it can compare benchmarks from multiple providers and outliers, meaning a holistic view can be created to assist in expediting the organisation’s sustainability journey.
“Building the whole environment is difficult and requires implementing the right frameworks and processes,” said Rajah. “Firms need a range of expertise: people who understand business problems, data and technical requirements and professionals that can interpret that information to deliver a robust technical solution.”
Education is important for a successful ESG plan and being able to promote the benefits of an ESG strategy will improve an organisation’s reputation and capabilities internally and externally. Simply put, it is not possible to examine the need of ESG without identifying the rise in ESG reporting. ESG disclosures are becoming expected for businesses and ESG scores and rankings have become a successful means of assessing a business as a potential investment, supplier or employer: imperative in the context of industry-wide struggles with data talent recruitment and retention.
ESG planning and implementation is being recognised globally to build sustainable supply chains and operations tackling environmental and social risks and social concerns such as workforce diversity. Furthermore, accelerated climate apprehensions are driving sustainable finance, which is a concept becoming a stalwart of corporate consciousness and strategies, causing many businesses to evaluate their processes and architectures.
Niresh is an executive leader in financial services and consulting with 20 years of experience focused on data, digital, regulation, automation, innovation and transformation. Niresh is managing director at Grant Thornton UK and leads the data, regtech and digital assurance practice at Grant Thornton UK.
He is also a board advisor and non-executive director for fintech’s and regtechs. Niresh has been selected in the prestigious Data IQ Top 100 influencers in data. He has led major complex regulatory and data programmes at board level including Brexit changes and GDPR. He also has extensive experience working with regulators across Europe on complex topics such as data management, data privacy and data protection, conduct and prudential regulation and compliance with Brexit and GDPR.
