Costs an increasing headache for sustainable investors

Sustainable data is not free, and a new survey by UK asset manager Schroders highlights that costs are a rapidly growing worry for investors.

Photo: PR/Schroders

MSCI, Sustainalytics, Refinitiv ESG Data, BlackRock's Aladdin, Arabesque S-Ray, Clarity AI, ISS ESG, and the list could go on. All of these companies provide investors and investment managers with ESG data that they can use in their investment process, and they are far from alone.

However, this data is obviously not free, and the costs associated with investing sustainably are a growing concern for global investors, the annual Schroders Institutional Investor Study for 2021 shows.

More than a third (34 percent) of 750 investors with a combined USD 26.8trn in assets surveyed consider costs a main challenge of investing in sustainable assets. This represents an increase of 11 and 13 percentage points compared to 2019 and 2020, respectively.

"Quite costly"

62 percent of the investors surveyed use third party ESG ratings, such as those previously mentioned, as their primary source for making sustainable investment decisions, "and these services tend to be quite costly", as the Schroders report reads.

According to Associate Investment Director for sustainability at Schroders, Claire Herbert, sustainable investing requires new ways of thinking and a forward-looking approach, but third party ratings are often backward-looking and opaque.

"We believe innovative proprietary analysis is crucial to understanding the risks and opportunities linked to the environmental and social trends that will play out over the coming decades. Stronger analysis leads to better-informed investment decisions and potentially long-term value," she says.

In-house analysis

54 percent turn to in-house analysis, which is common for Nordic investors, and some investors won't use external managers that rely solely on external data providers. This includes Swedish state buffer fund AP1, for example.

"However, it is encouraging to see that 54 percent use in-house analytics, with European and North American investors leading the way (59 percent and 53 percent)," Schroders writes.

The remaining companies reported that they use external benchmarks and indices (48 percent), independent /specialised ESG labels or vertification (40 percent), external performance data (37 percent) and none of the above (2 percent).

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