FactSet’s Vanessa Barnett, Global Head of Environmental, Social, and Governance (ESG), recently spoke with Climate Action about the recent acceleration in ESG investing, the implications for the investment community, and whether COVID-19 could be a catalyst for improved reporting and transparency.
Q: Would you agree there has been recent momentum in ESG investing and do you expect to see this trend to continue once we are in the post-pandemic phase?
The pace of ESG investing has undoubtedly accelerated in large part due to a fundamental shift within the investment community in the way ESG factors are considered. Non-traditional datasets that focus on a company’s environmental or societal impact, for example, are now being accepted as financially relevant. These ESG datasets are fast becoming a fundamental part of investment research and analysis, on par with traditional financial data, and are being used as a means of gaining even greater insight into corporate value and sustainability; sustainability not just in the environmental sense but also in terms of operating models, products, and long term profitability. When viewed through this lens, all institutional investing essentially becomes ESG investing, or at a minimum something an investor must opt out of rather than opt in to.
Q: When analyzing ESG against a benchmark how easily can this be achieved when using the FactSet multi-asset class analytics?
FactSet’s robust portfolio analytics provide our clients with the tools they need to measure and report on their holdings against a wide array of global ESG benchmarks. We partner with our clients to automate the loading of portfolio holdings daily. Separately, we receive daily feeds of global benchmarks from all major providers, ESG data from seven third-party providers, and have our own Truvalue Labs data. We run all this data through a concordance process to ensure that portfolio securities, benchmark securities, and ESG data are all tied to a common set of public identifiers. From there, linking everything together in portfolio analytics is turnkey, enabling a seamless benchmark-relative comparison process for carbon footprinting, Scope 1-3 emissions reporting, and more.
Q: Do you think that COVID-19 could be a catalyst for improved ESG reporting and transparency? Has it refocused the attention on the E & S of ESG?
I do believe that COVID-19 has made the financial impact of a business’s sick leave and redundancy policies, for example, clearer than ever before. This tangible link between human capital, social capital and environmental issues, and financial materiality is the real driver of investor focus that in turn ramps up the pressure on companies for disclosure. Absent concrete regulation on non-financial reporting, many companies may continue to face internal barriers such as a lack of funding and expertise that stand in the way of accurate measurement and reporting. However, great progress is being made in converging on a set of standards for non-traditional metrics reporting by the World Economic Forum International Business Council and IFRS, so we should see the pace of corporate disclosure pick up in the near term.
Q: What difficulties do asset owners and investment managers face when incorporating ESG data in their portfolios? How does the FactSet framework assist with improving levels of transparency?
Because each ESG data provider in the market today brings their own perspective to their content, it is common for our clients to integrate multiple datasets. The real challenge there is linking data across providers, together with more traditional financial metrics; the key is a robust symbology mapping service. FactSet’s Data Management Solutions (DMS), including the FactSet Concordance Service, allow clients to link securities, people, funds, and entities to one another and in doing so, correlate disparate sources of information to enable in-depth ESG analysis. Our framework also supports a powerful reporting suite to automate client-facing documents such as fund factsheets and internal board reports, providing further transparency.