Institutional investors see the collecting and analysis of data as the greatest challenge to incorporating ESG factors into investment management, according to a new paper from Northern Trust.
When asked about the top challenges of incorporating ESG factors in a survey conducted in the second quarter, 89% of money managers and 79% of asset owners said "collecting and analyzing data" was a top challenge, and 82% and 77% of money managers and asset owners, respectively, said "securing and normalizing sustainable investing data" was a top challenge.
"This study shows that ESG is a top priority for institutional investors, but a dearth of standardized data on sustainability makes implementation difficult," said Paul F. Fahey, head of investment data science, asset servicing, Americas, at Northern Trust, in a news release Wednesday announcing the release of the paper. "Digital innovation is transforming the investment landscape, and advances in data science can be a key development in helping asset owners and managers make sense of increasing volumes of data across the ESG spectrum."
Eighty-three percent of money managers also said their greatest challenge was staying compliant with ESG regulations, compared with 67% of asset owners that responded with that as a top challenge.
The paper also said asset owners are struggling more with understanding the constantly evolving global regulatory environment associated with ESG investing. While 95% of money managers said they understand all or most of their regulatory requirements and obligations, only 60% of asset owners said they possessed those levels of understanding.
The paper notes the "ESG landscape is fast moving and dynamic, and there is a danger that prioritizing the need to adapt to regulation will limit wider change. Investor values and belief systems are changing faster than legislation is, for example."
The paper compiled data from a survey during the second quarter of institutional investor clients conducted by Northern Trust with PricewaterhouseCoopers’ strategy consulting team. Northern Trust and PwC surveyed 80 institutional clients with asset totals ranging from $10 billion to more than $100 billion, a spokesman said in an email.
The paper — "ESG's Imprint on Institutional Investing" — is available on Northern Trust's website.
