Climate change has already begun to affect business, with extreme weather, flooding, wildfires and drought threatening company assets and supply chains. As the environment evolves, companies that improve their energy efficiency and create new products and services will survive and companies that are slow to change will struggle. The financial services community is keenly aware of this challenge, and many professional money managers are now looking for ways to integrate environmental, social and governance data into their investment approaches to better manage risk and find opportunities in a changing world.
Increased investor appetite and the potential for outsized risk-adjusted returns has boosted total assets in sustainable investment strategies to $12 trillion in the United States, or one quarter of all professional assets under management, according to the US SIF 2018 Trends Report. The amount is up 38% from 2016, with more double-digit growth expected in the years ahead.
But while sustainable investing has become a more mainstream concept, investors in the sector face challenges. One of the most pressing issues is a lack of access to reliable and consistent ESG data.
Investors rely on ESG data to identify which companies may be best positioned to succeed in a sustainable world. However, the lack of consistent reporting standards for ESG data presents a major barrier to the increased adoption of sustainable investing. This hurdle forces investors to expend an excessive amount of already limited resources trying to standardize and interpret unstructured data, slowing down experienced investors and inhibiting new entrants from joining the field.
While it may be years before ESG data becomes fully standardized, the investment community can take steps now to access more meaningful and actionable ESG data to make better informed investment decisions.