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Special Report

Impact investing


In search of a gold standard

University research network seeks to cut through the noise of ESG data

Key points

• Top university alliance GRASFI seeks high-profile sponsorships on ESG research
• GRASFI claims leading position to set ‘gold standard’ in research
• Diverging commercial motivations among research providers compromise quality

BNP Paribas Asset Management is to become a sponsor of the Global Research Alliance for Sustainable Finance and Investment (GRASFI), an international network of 20 universities established in 2017 to promote rigorous academic research into sustainable finance and investment. It is the first sponsor to connect up with the alliance, an initiative to elevate ESG research and data above the strata of commercially available operators as well as poorly performing universities. 

“As an analogy, you could compare this relationship to the partnerships of pharmaceutical companies. They don’t go back to basic research – that is done by universities. They take it and develop the treatments. We see this in the same way. The academics develop the expertise and we take it and convert it into practical data,” says Helena Viñes Fiestas, deputy head of the BNP Paribas Sustainability Centre, outlining her plans on how the partnership could work. 

Hence, both organisations are discussing the framework for sponsoring a PhD student. The relationship would benefit the organisations by giving them access to better research as ESG becomes more mainstream. “We want to be part of the frontline of change. We always see ourselves in the lead on this. It’s been moving from niche to mainstream so in that sense we want to be in the leading group,” says Viñes Fiestas.

The conditions of the sponsorships have yet to be defined. They come at a time of ESG data proliferation in the investment market, and there are concerns the divergence of the data is causing concern. Rob Bauer, professor of finance at the University of Maastricht, Netherlands, and co-chair of GRASFI, emphasises the diversity and selectivity of the alliance’s work with the private sector. 

“We are not just partnering with asset managers, and we don’t want too many sponsorships. But we are looking for big responders. They could include not only asset managers but banks and perhaps asset owners. That is because we determine the agenda,” says Bauer. Universities in the alliance intend to retain their independence while engaging with investors and also showing them their research. “We believe universities in the alliance have an important role in showing the research should be high quality output.” 

GRESB, the ESG benchmark for real estate investment – also founded by Bauer – aims to devise practical assessment tools. GRASFI has a different mission, and does not intend to develop products. Its formation comes at a time when ESG data suppliers have burgeoned into a mature commercial market serving a cluster of industrious and receptive asset management customers. Reviewing the market, Bauer and his colleagues have taken a decision to act. Their aim is to set a ‘gold standard’ for research in the field.

According to the Global Initiative for Sustainability Ratings, over 100 organisations worldwide are collecting data, analysing, and rating or ranking company ESG performance. ESG research providers have arrived at the consolidation phase of market development. 

rob bauer

The problem is, quantity has not improved quality, and little consistency or comparability exists between supplier approaches to assessment parameters. Individual companies are ranked very differently according to rating provider. There are few examples of objective peer-reviewed data, although some good voluntary non-financial reporting standards have evolved over the last 15 years, as well as good examples of research from nonprofits, and a few leaders pioneering new disclosures. 

Judith Stroehle, a researcher at Saïd Business School, Oxford, a member of GRASFI, provides a likely explanation for the diversification of data provision. “All of them are commercially motivated. There is a very wide range of products. They don’t offer raw data but have a different focus and tools for aggregating the data”. The market-led rather than social purpose for collecting the data means that data providers have little incentive to find common standards or align their findings in such a way that would help measure corporate performance consistently. 

“They are interested in staying different from each other due to the commercial motivation for the product they supply,” she says. To overcome the contradictions revealed by differentiation, many research analysts use a lattice of different ESG assessment tools to refine their perceptions of a company’s performance. Meanwhile, the data market continues to grow, producing newcomers adopting the most recent trends in the data industry. These include, for example, companies using natural language processing and artificial intelligence to scrape the web for unstructured data.

Data in the environmental field are a little easier to obtain because disclosures on carbon emissions are improving due to regulation and the spread of carbon pricing – although plenty of omissions still exist. Typically, only about half of corporate respondents supply carbon emissions data to the various surveys going round. “For many companies, the carbon emissions number is an estimate so you take an average of the performance of the sector,” says Viñes Fiestas. However, on some issues related directly to the social branch of ESG considerations, hardly any quantified data exist, and are probably even tougher to standardise. “Issues such as human rights and employment conditions are open to different interpretations on how to assess behaviour.” 

Research on the academic side is almost equally flawed, says Bauer: “the quality of output, as well as level of collaboration, is low”. At the same time, there is evidence that some private companies intend to corrupt ESG data. Hence the GRASFI endeavour. 

Still, it is not yet clear how the GRASFI alliance will bridge the gap with the private sector while retaining its research independence and avoiding becoming full-time consultants. Certainly, academic interns working within firms can assist portfolio managers convert the data into better market intelligence. “They don’t have time to dig deep into the methodology of the vendors; we can help them understand a bit more,” says Stroehle. “We need to train analysts in how to use and contextualise the data.”

But, perhaps more significantly, the data evolution prompted by legislation, and the potential for higher-quality university partnerships on critical issues, could make a contribution to emerging market segments. “Some of this research could further the understanding of impact investment,” says Bauer.

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