COP26 highlights investor pressures on big businesses

Data is king in the constant battle to stay if not ahead, then at least abreast of current business goals. Targets feel like they are moving all of the time and pressure is coming from every angle as corporates, smaller businesses, funds and investors all attempt to find their way through the climate maze. Listening to reports from COP 26 this week sets out just how much some believe needs to change. I don’t think I had ever heard of the phrase ‘Net Zero’ until somewhere around 5 years ago, and now every element of the business process is touched in some way by the drive towards better climate consideration. It feels a little like we are all struggling to keep up.

There are some elements that we can manage really successfully though and in fact future proof, and that is the tech we use to help us with our day to day business flow. We have been streamlining data solutions for some time. Digital transformation, taking manual tasks and automating them for efficiency, has allowed managers to embrace cloud technology and data management for both research and client data in a secure and efficient way. Centralised data dashboards, often built as a client specific platform, can allow managers to access their ESG data all in one place and get a 360 degree view of their data landscape. The ability to research, view and review investor and regulatory reports in this way provides managers with next level information to assist with investment decision making.

The story is a little different depending on the size of fund. Smaller funds need to be more aware of a shift in types of data and disclosure, as investors are beginning to look for better insights into human capital management, global operations, risks and mitigation efforts as part of the overall ESG picture. Big funds may attract lucrative investors through huge capital resources and efficient performance data, but for smaller funds with less resource, an excellent data strategy is essential for this. Companies doing this have a balance between a collection of elements that satisfy the many audiences of the modern ESG report.

At least a fifth of the world’s 2,000 largest public companies have now made a net zero commitment and more are expected to do so at this month’s COP26 summit. But any business that fails to meet their own investor expectation for robust targets faces more than a reputational problem. It also has a real-world financial impact. If a net zero target is deemed too weak, it can cast doubt on a company’s investment plans and lead to downgraded expectations for returns and asset values and investor engagement. This will be evidenced in ESG reporting of course.

Investors have struggled to understand what published net zero goals actually mean and I think the same applies with some of the data funds are accessing too. As an industry, for some time, we have been grappling with the best solution for harnessing, reading and reporting on ESG data. Currently, ESG data is not standardised so, depending on the strategy, managers are left to do their own research and integrate that with third-party data. And third-party data, depending on the provider, is based on different methodologies for assessing companies as well as country EGS risk ratings. Increasingly managers are also asked to provide climate related data when reporting on their portfolios. This can be expensive and where there are gaps in the data, modelling is required in order to estimate carbon footprints or the carbon intensity of certain products. Europe has now moved to the EU-mandated SFDR, but the UK and US don’t yet have such a framework.

Overcoming this from a technical standpoint is no simple feat. Critical to integration is selection of a platform that at once meets the ESG need without disrupting current operations. As there is currently no agreed upon industry standard, firms need to clearly articulate the metrics they have selected, how these were chosen, how they will report, and how they will be audited. Designed from the ground up to meet the standards of investors and regulators, RFA’s data management platform can store, sort, manage and report on your proprietary and third party data via a secure cloud based platform. We are facing fast paced challenges that, listening this week to the news from Glasgow this week, will continue to develop and grow. Having a robust data strategy will help you keep pace with your competitors.