AMWatch

Major asset managers struggle with ESG data while bills are piling up

BANK-OWNED ASSET MANAGERS' ESG ASPIRATIONS: Nordic asset managers face increasing ESG data bills as multiple data providers are a requirement to get the full picture.  Meanwhile, the same asset managers are under pressure to deliver low-cost solutions to investors.

This picture does not represent bills from ESG data providers. It's a genre picture for illustration purpose. | Photo: Jesper Stormly Hansen / Ritzau Scanpix/Ritzau Scanpix

When asked, most Nordic asset managers agree that one of the biggest challenges in responsible investments is data quality. In order to perform a thorough investment analysis, money managers need quality data on the companies’ environmental, social and governance (ESG) practices.

At DNB Asset Management, five full time employees (FTEs) make up the company’s responsible investments team, who work closely with the portfolio managers, covering an AuM of EUR 65 bn. They utilize ESG data from external service providers as a first step to screen the investment universe while material risks and opportunities are integrated into investment decisions by the portfolio managers.

"We face some challenges in the quality of the data we receive from external consultants, which is often due to a lack of transparency and company disclosure," explains DNB Asset Management Head of Responsible Investment Janicke Scheele to AMWatch.

"This may result in ESG scores that are not truly reflective of a company’s ESG work.  We actively work to address this by emphasizing the importance of working with ESG data providers and improving disclosure in meetings with companies," she says.

DNB Asset Management Head of Responsible Investment Janicke Scheele | Photo: PR / DNB Asset Management
DNB Asset Management Head of Responsible Investment Janicke Scheele | Photo: PR / DNB Asset Management
 

Multiple data providers required to ensure meaningful analyses  

At Finnish company OP Asset Management, Head of ESG Annika Manninen thinks there is plenty of data and many good quality data providers. But she is challenged by deciding which sources to use and how to find the correct signals for different strategies and asset classes.

Manninen’s team of three FTEs cover an investment universe of approximately 2,000 companies. Consequently, she is highly dependable on reliable data providers as her team do not have the resources to perform the full investment analyses from scratch themselves. And the basic data is not enough.

“If you want to do the analysis in the perfect way, you need several data providers to be able to get the right picture," she explains to AMWatch. "You need data on the ESG risk, on the opportunities and impact, data about information on business involvement, data on the norms controversy, carbon data, data on climate risk and scenario analysis, to mention a few," she adds.

OP Asset Management Head of ESG Annika Manninen | Photo: PR / OP
OP Asset Management Head of ESG Annika Manninen | Photo: PR / OP
 

Investors seek low-cost funds but thorough ESG analysis costs are high

According to Manninen, as the data vary from one data provider to the next, asset managers have to integrate different research sources, increasing the price of ESG analysis.

“The bills are piling up because the costs of thorough ESG analysis are high," she says. "And investors seek to pay less. We need to come up with a way to do thorough responsible investments and still provide low-cost investment products to our customers.”

But boosting inhouse capabilities is not always the answer to all problems.

Although Nordea Asset Management has 12 FTEs in its responsible investments team, the lack of standardization and transparency in ESG reports is also considered an obstruction.

“When we analyze companies, we use different external data resources and then the companies’ sustainability report. But ESG data is still not standardized and verified by third parties and not all companies develop these reports which means we have to do some digging," says Nordea Asset Management Co-head of Responsible Investments Katarina Hammar.

Nordea Asset Management Co-head of Responsible Investments Katarina Hammar | Photo: PR: Nordea
Nordea Asset Management Co-head of Responsible Investments Katarina Hammar | Photo: PR: Nordea
 

At Danske Asset Management, the ESG team comprises of 17 FTEs making it the largest team in the Nordics, and the company agrees that data quality represents a major challenge. However, current industrial trends are going to change ESG data demands, according to an email from Danske AM Press Officer to AMWatch.

Earlier this year, a study by risk and portfolio analytics provider Axioma supported the perception of asset managers in its conclusion that ESG scores in the companies show “several remarkable instances of score divergence between data vendors.”

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