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Asset managers warned over poor data governance in ESG rush

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Asset managers must be careful not to apply lower standards of governance to environmental, social and corporate governance (ESG) data than to other inputs into the investment process, according to a report.

Many firms were effectively doing just that, however, and exposing themselves to a range of risks in the process, the report suggested.

“The importance of good data governance does not end when it comes to ESG data,” wrote Tarne Bevan, an independent consultant and main author of the report.

“Yet in the rush to join the growing enthusiasm for ESG investments, many firms ignore the imperative for strong data governance.”

Associated risks, according to the report, included ill-informed investment decisions, inaccurate disclosures to regulators and investors, disingenuous marketing materials, and mis-selling claims.

The report was co-authored by Adam Taylor, data governance lead at Aviva Investors – although he provided input in a personal capacity. Bevan previously worked at Aviva Investors as head of central investment services. As a consultant she has done work at firms such as Janus Henderson, Fidelity, and Amundi (Pioneer), according to her LinkedIn profile. She was recently interim chief operating officer, investments for GAM Investments.

Tarne Bevan

The paper, which was self-initiated, was intended as “a prompt”, Bevan told IPE.

“I’ve been looking at the area of ESG for the last couple of years and I noticed from a lot of my contacts, peers and friends in the industry in different functions that a lot of them hadn’t really grasped how it was being integrated beyond the investment areas,” she said.

“This wasn’t a promotional thing for me. I’m just interested in the fact that if we’re trying to do [ESG] right we need to think about it a bit more deeply and not create a cottage industry around this.”

It was important for asset managers to bring along the non-investment functions of their business as they sought to get on the ESG “wave”, Bevan said. 

The report stated: “The impetus for this paper has come from the belief that complete and successful embodiment of sustainability considerations within investment and wealth management firms can only occur if they become part of the day-to-day operations, practices and culture.”

What asset managers can do

The report identified three steps to mitigating the risks – reputational, regulatory and fiduciary – involved in using or producing ESG data. According to these, asset managers should:

  • Assess ESG data in terms of its sourcing method, the timeliness of collation, periodicity and availability, plus any methodologies used in its publication;
  • Consider the implications of integrating the data in investment processes “in terms of its relatedness to financial data and applicability to the capital structure of investee companies”; and
  • Agree how to integrate data into an existing governance framework, ensuring appropriate subject matter experts across the relevant business functions are involved, such as representatives from investment, marketing, product, client reporting, compliance, risk, data and IT functions.

A copy of the report can be downloaded below.

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