The market for ESG data could reach $1 billion by 2021, according to a research report from Opimas.
The report, ESG Data Market: No Stopping Its Rise Now, found that the market hit $617 million in 2019 and is expected to grow annually by 20%, along with 35% growth for ESG indexes.
Sixty percent of ESG data spending is in Europe, in response to regulatory pressure, with another 33% in North America and 7% in Asia. Asset managers in Europe will be required to integrate ESG considerations into their fiduciary duties by 2021.
The biggest buyers of ESG data are asset managers, at 59%, followed by sell-side institutions at 19%, asset owners at 12%, others, including consulting firms and investment advisers, at 6%, and corporates at 4%.
The report divides the ESG data market into five provider categories:
- Generalist data providers such as Bloomberg, Refinitiv or MSCI.
- ESG specialist or research firms,
- Asset managers with ESG expertise in data, ratings and analytics.
- Credit rating agencies.
- Stock exchanges.
While ESG data providers are using more sources to make ESG data more timely and reliable, Axel Pierron, Opimas managing director and report co-author, said incomparable data pose a risk. "The issue ahead is that the industry is likely to see a massive reallocation of portfolios toward companies that have better ESG ratings solely based on incomparable data. Investors will end up with stocks that are overpriced due to — at best — incomplete or outdated data," Mr. Pierron said in a statement.
"But the bigger danger looming is the backlash after a highly ESG-rated company is caught off guard by an unforeseen turn of events that reveals its ESG data to be flawed, incomplete or not fully transparent which, in turn, could compel people to start questioning the value of integrating ESG criteria into their investment decisions," he said. "This would be a setback with potentially significant consequences going forward."