Investors increasingly view global sustainability challenges as material to long-term financial performance, as the visible impacts of climate change—extreme heat, droughts, floods and sea level rise—become ever clearer. But do they have enough information to manage the risks and capitalize on the opportunities of a world in transition?
To account for the effects of a world in flux, more investors are pursuing strategies that consider relevant environmental, social and governance (ESG) factors, an approach known broadly as sustainable investing. In 2017 alone, assets managed through such an approach increased by 37 percent, according to Bloomberg.
Despite the swell in interest, sustainable investing is by no means a matter of course for capital markets. Key barriers, including well-documented limitations with ESG data, prevent true scaling and mainstreaming.
But what exactly do investors need from the data? To further explore the most pressing needs, we set out to scan the state of the market. After reviewing the latest literature, we held a series of conversations with investment practitioners. We spoke with more than 30 practitioners from 25 firms, including institutional asset owners, pension fund managers, asset managers, investment advisors and data firms, that collectively manage $5.2 trillion in assets. The composition of the sample leaned towards practitioners with a general interest in sustainable investing, making it a group well positioned to consider the key data challenges facing the sustainable investing market.
Through these conversations, which we documented anonymously to encourage candor, we gained a more nuanced perspective on investors’ sustainability concerns and the limitations of existing data. While there is growing attention to getting better data and more robust, standardized company disclosures, it will take a wider set of actions under a multifaceted approach to meet investors’ data needs. This collective effort will be an important step in harnessing the power of markets for sustainable change.
WRI is exploring how to contribute to this effort, and fortunately, we are not alone. Research groups, foundations, associations and forward-thinking asset owners and managers are all seeking ways to solve this challenge.
We hope by sharing our perspective, informed by both our research and our experience as an asset owner, we can help bring more focus on data solutions.