Insights for advisers, by advisers

Data the greatest challenge to ESG

•2-Andre-Roberts

The Inside Network’s inaugural ESG Masterclass welcomed leading financial advisers and subject matter experts across the responsible and ESG investment spectrum to discuss the biggest issues facing investors.

With delegates encouraged to have input throughout the discussion, the unique format offered an opportunity to gain a ‘temperature check’ on the issues that are most important to clients, supported by thought-provoking discussions.

Aside from the significant nuance required to navigate the ESG journey, as it has been described by many, the importance of having access to high-quality data was a key takeaway from the presentation by Invesco Quantitative Strategies’ Melbourne-based manager, Andre Roberts. With the extensive, global IQS team dedicated to finding opportunity within data through factor-based investing, Roberts was uniquely positioned to provide an insight into what is missing in the sector.

Harking back to the glory days of the early 2000s, Roberts reminisced with host Giselle Roux on the difficulty involved in collating “consensus” earnings estimate all those years ago. With references to floppy disks and hard CDs, the comparison against the current state of access to ESG data was initially unexpected. Yet as he explained through his detailed presentation, there simply isn’t a single “source of truth” for ESG data at the current time. Further, even for those who share similar approaches to ESG assessments, the correlation between two of the major ‘comprehensive’ ESG data providers on a single company was just 33 per cent.

If the experts can’t do it, what hope do financial advisers and investors have? Roberts reiterated throughout the in-depth session the importance of knowing exactly what it is you are seeking to achieve, i.e. what is the objective of your ESG portfolio? Are you seeking to be less carbon-intensive, avoid modern slavery, make a positive contribution to the environment? These questions must be answered before you even consider the type of data you require.

The sources of ESG data are split into three – comprehensive, specialist and fundamental – according to Roberts, with some taking both objective and subjective views. The names that fall within these range from the big names like Sustainalytics, MSCI, Bloomberg and Refinitiv, with a number of specialist players offering unique insights into particular parts of the Environment, Social or Governance pillars. The millions of data points and hundreds of providers that simply put the cost of ESG data beyond smaller businesses, remaining the domain of institutions, at least for now. 

Tying the discussion together, delegates were challenged to consider the relative merits of two well-known Australian businesses, Goodman Group (ASX:GMG) and Cochlear (ASX:COH), from an ESG perspective, with Roberts highlighting their very different assessment from various data providers, along with the companies that sit around them on the ASX index. 

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