Data constraints the biggest ESG integration hurdle

According to the ESG Global Survey 2023 by BNP Paribas, 71% of respondents reported that ESG data drawbacks are posing the biggest challenges to ESG integration.

This figure has increased by 17% since 2021. Firms surveyed expressed particular difficulties around combatting financial risks arising from climate change.

The survey attracted responses from 420 asset owners and managers, hedge funds and private equity firms. The data was collected between April and July 2023 and the 420 respondents were split as follows: 180 asset owners, 180 asset managers, and 60 hedge funds and private capital firms. Half were based in Europe, while the remaining firms came from Asia Pacific (28.6%) and North America (21.4%). The majority of respondents (64%) reported more than $25bn of AUM.

Concerns around inconsistent ESG data are an ongoing industry issue. For example, CDP produced a report on ESG ratings and data product providers in July 2023, revealing that the quality of service provided by these ratings agencies is often negatively affected by incomplete ESG data.

The European Commission has attempted to tackle this issue through a package of sustainable regulatory reforms. Part of the proposal is that the European Securities and Markets Authority (ESMA) adopts a supervisory role over ESG ratings providers.

Earlier this month, the European Fund and Asset Management Association criticised parts of the reforms, calling for the inclusion of ESG ratings providers within the legislative framework. It also puts a larger emphasis on scrutinising the data used by the providers, and not just overseeing the providers themselves.

Marie-Gwenhaelle Geffroy, global head of ESG, sustainability and private capital practice, financial institutions coverage at BNP Paribas, commented on the firm’s survey results: “ESG data must help investors assess portfolios, manage risk, and take into consideration the current and historic impact of the ESG components on performance and strategy. It is more important than ever, if we want to turn sustainability into an opportunity, that ESG data is embedded in investment strategies.”