The author of this op-ed poses the following question: If the big players in the intensively competitive world of consumer electronics can co-exist, then why can’t firms in the world of ESG data?
The ESG movement continues, buffeted by forces such as the
energy crisis, geopolitics, and economic change. So much is said
and read about it that readers could be forgiven for getting
exhausted, even a touch cynical. There’s a need to keep the
subject as straightforward as possible.
Shai Popat, managing director, global head Product and
Commercial Strategy, SIX
(owners of the Swiss and Spanish stock exchange), reflects on
generational wealth transfers and changing attitudes to ESG, on
the need for accurate and timely data, and more. The editors of
this news service are pleased to share these views and invite
replies. The usual disclaimers apply. Email tom.burroughes@wealthbriefing.com
Is anyone fatigued when it comes to hearing about the
generational shift? We have all heard this buzz phrase. However,
everyone seems to have different interpretations of what it
means. As with so many phrases that regularly bestow our
industry, the phrase means different things to different people.
From the next generation of wealth management clients who are
more tech savvy than ever, to those with concerns about the
environmental and social state of the world they are leaving
behind – mindsets are evolving, demands are increasing,
expectations are mounting, and behaviours are fundamentally
changing both professionally, and personally. But what exactly do
these changes mean for the capital markets industry as we head
into the New Year?
Sometimes, as all parents will experience over the holiday
season, the personal and the professional are not as different as
one might think. From Disney Plus and Amazon Prime, to Hulu and a
plethora of other viewing platforms – the consumption of
entertainment has changed beyond all recognition from when most
of us were growing up. It is now all about the kids having
tailored programme recommendations and binge-watching entire
seasons in one weekend. All while parents wait for the next
weekly instalment of whatever BBC drama is about to be broadcast.
The consumption habits of the new generation and buyers of the
future have clearly changed beyond all recognition.
The point is, to the professional this is ultimately where the
capital markets are heading when it comes to data. Gone are the
days of relying on one gargantuan pipe of information to wade
through – people simply do not have the time or desire for this.
What was once a Fort Knox fortress of insight that only certain
individuals could access for reporting, is now a plethora of
insight used to drive alpha. Today, data is no longer for the
privileged few, it is a right for many. But while, like in
entertainment, the consumption and use of data is changing, in
addition to who is using it, the objectives remain the same. The
front office just wants the most insightful data that helps them
generate returns, while the back-office expects the data to be
correct and integrated into their systems.
The ESG investment world is a prime case in point. From being
something that everyone just talked about, to something
people are now developing investment strategies around – there is
no getting away from ESG. Last year saw record inflows for ESG in
passive investing, as $391 billion poured into ESG ETF assets, up
nearly 100 per cent from 2020 and 10 times as much as in
2017 (Source: Statista research). But does the current ESG data
landscape reflect the needs and expectations of the next
generation of investors, who increasingly demand higher overall
confidence in their investments, with higher quality information,
greater transparency more authenticity and less hype?
The reality is that the next generation of investors has a
different set of goals to those preceding them. To date, the
overwhelming focus of investors has been a desire to generate
absolute returns, based on their investment preferences. It
follows, therefore, that this new wave of investors demands more
granular insights into the impact that their investments have
from an ESG perspective. In our recent Future of Finance
global study of over 300 financial institutions, 44 per cent
stated the need for ESG-related data collection, analysis and
reporting services. The information that they require pertaining
to their portfolios is broader and deeper than ever. The
challenge facing financial institutions is that this places more
demands on the variety and quality of data they provide.
Let’s be clear, solving the data challenge to uncover a more
in-depth understanding of ESG investing cannot, and will not, be
solved by one single firm. To overcome the ESG data challenge,
the industry must get comfortable with the idea of co-existence.
Going back to my streaming frenzy household, we have a new TV
with a flashy remote control that has Netflix, Amazon Prime and
Now TV branded buttons.
This would suggest that, if the big players in the intensively
competitive world of consumer electronics can co-exist, then why
can’t firms in the world of ESG data? There is no logical reason
as to why, as we head into 2023, alternative data from different
vendors and different marketplaces should not co-exist together
to overcome the current ESG data challenge.
