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Understand ESG data

A shift in investor sentiment towards a conscientious society, a more environmentally friendly planet, and improved governance practices is the investment and underwriting position of all financial institutions, large and small, traditional or fintech. We fully control the status of ESGs and promote the incorporation of ESGs. Considerations for reporting and risk management frameworks.

At the beginning of 2021, there was a notable event in which many professional hedge fund managers were defeated as individual investors deliberately invested to boost stock prices. This activity was coordinated via social media. For example, if a company is using more advanced ESG big data mining technology to take into account sentiment analysis from social media feeds as part of its risk monitoring, then millions of retail customers are in short supply. It is possible that you have detected that you are in a long position with. ..

Real-time reputation risk monitoring of ESG issues is now commonplace for most Tier 1 financial institutions. Emotion monitoring on popular major social media platforms such as Reddit and Twitter, using carefully selected search terms, allows you to quickly find the risks and issues of reputation that are emerging online about your company.

The same applies to more thorough web searches for company references and regulatory submissions. Such exercises can help you find out when a company is gaining traction for the right or wrong reason. Similarly, ESG analysts can use advanced data mining techniques to examine disputes and customer complaints and analyze them on a regular basis to find common themes.

However, identifying the right ESG data source and deciphering and collating it is not easy. Financial reporting is standardized and in a familiar format, but corporate reporting on ESG aspects is nothing else. Companies are not yet obliged to report most ESG-related information in a standardized manner. Therefore, the practice is fragmented and disjointed. There are few standard templates. That is, companies publish different information in different ways.

Much ESG information is self-reported through regular sustainability reports and annual reports. Inevitably, this opens up the possibility of “greenwashing”. Not surprisingly, businesses are keen to portray themselves in the best possible light.

As a result, simple plug-and-play off-the-shelf ESG scores are no longer sufficient. Some companies are overly dependent on these off-the-shelf ESG scores, or have announced sustainability strategies that are incompatible with their current (on or off) balance sheet holdings. I’ve seen you inadvertently overinvest in carbon.

Cutting noise, getting relevant information quickly, and analyzing it effectively is not an easy task. We’ve also seen something like a two-speed market open. Large global institutions have been very active in building their own in-house data analytics capabilities for ESG, acquiring one of the new types of fintech data aggregators, or a combination of both. rice field. M & A in this field is prolific.

This means that large institutions can track data signals across multiple sources and decrypt them almost instantly. To coordinate their response, they can respond to breaking news and controversies, read legal documents on machines, and even analyze investor sentiment from social media. In recent years, even large credit rating agencies and market data providers have continued to buy to stay competitive and meet ESG and sustainability-related demands. However, it is often much more difficult for small players with limited budgets, as they have to straddle many competing priorities.

For managers who question the need to prioritize this, even if nothing else, recent market events should be an awakening call for a much wider cast of data.

If you can see even fragments of silver lining in a pandemic, ESG should be a good candidate to successfully and truly move to the mainstream of financial services. ESGs are currently on the road to redefining capital markets into more transparent and conscientious markets.

Budha Bhattacharya is responsible for the analysis of ESGIQ.KPMGLighthouse. He is also a professor of finance and banking industry at UCL, Institute of Finance and Technology.

Understand ESG data

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