ESG: What Does It Mean for Operations and Technology?

When it comes to investing with a social purpose, business is booming!

Whether your firm’s preferred moniker is ESG (Environment, Social, Governance), SRI (Socially Responsible Investing) or the pithy Impact Investing, investment strategies with some level of social awareness have been gaining popularity at a record pace. Asset managers of all sizes have taken note and are ramping up product development and marketing efforts in this space.

While many of the ESG headlines focus on climate change, with Blackrock leading the charge, the growth in assets under management spans the gamut of socially aware investments. With clients, media, product managers, marketing, and investment teams all focused on the next generation of socially aware investments, it appears that the large inflow of assets is just beginning.

So, what does this mean to operations and technology leaders who will be asked to support the plethora of new products and influx of assets that will arise from this growth? Not surprisingly, like almost everything else in asset management operations and technology, much of the challenge (and potential solution) will reside in the data (isn’t it always about the data?), or—more appropriately—in the effective management of the data. 

To be prepared to support ESG/SRI/Impact Investing for your firm and effectively manage the data that comes with it, ops and tech leaders much be able to answer the following questions:

Operational scope

• Which stakeholders will require the ESG/SRI data?
• Is the data driving investment analysis?
• Embedded in the portfolio construction process?
• Required for performance and attribution reporting? Compliance? Marketing materials? Client communication?

Data requirements

• What is your firm’s definition of ESG/SRI?
• What metrics/data elements are important to your firm?
• Once the metrics are determined, can you glean this information from corporate reporting/readily available sources?
• Are there market data vendors that share your firm’s view? Or will a custom data source/internal solution be required?

Ongoing execution

• How will you capture the required data?
• Merge with your existing portfolio data set?
• Securely store the information and make available for your internal and external consumers?
• Track performance and attribution of the socially aware investing?
• Demonstrate that your firm is true to its social investing philosophy and claims to its clients, board and regulators?

The secret to supporting the ESG needs of your firm from an operational and technology perspective ultimately lies in your ability to successfully identify, acquire, validate, store, and deliver ESG data to all of your key stakeholders in an efficient and effective manner.

Ensuring that your firm’s growing ESG requirements are thoughtfully integrated into your overall investment data management framework is critical, especially if ESG needs will stretch the bounds of your current infrastructure.  In many cases, these new data demands are a big part of the catalyst for a strategic review of a firm’s investment data management capability.  If you’re uncertain of your firm’s ability to handle these demands, we suggest taking a big-picture view and initiating a Strategic Assessment of your current investment data management capability before initiating a Systems/Provider Strategy and Selection in order to implement a new solution(s) that balances socially responsible investing needs with your data ecosystem.