A Tale of Two CIOs

Chief Investment Officer or Chief Information Officer: Different CIO views on ESG data

As ESG data grows up, ESG software is being treated more like an enterprise software purchase. That brings more stakeholders to the table. The new norm includes an Investment perspective, an Information perspective and an ESG specialist view.

Our recent Insights investor survey showed that 92% of real asset investors see ESG data as material to their investment decision-making, with the majority of investors integrating ESG data into decisions throughout the investment lifecycle. About half of the investors look at ESG data alongside financial data. However, only 14% of these investors see ESG data as investment grade.

Whilst the ESG specialist team is riding high on an unprecedented wave of interest in using ESG data, the investment and information teams are still learning about what is material and how to use this data intelligently.

The Investment team starts from a position of executing their fiduciary duty. In practice, that will depend on their investment mandate, their investment objectives, strategy and thesis, the funds available and deal flow. An opportunistic fund will be considering ESG materiality in a different way to a core fund. A fund with a 2-3 year hold period with the finance to transform an asset will require different properties to a 5-year core fund seeking secure income and no major capital expenditure.

In the push for ESG data standardization in reporting and disclosure, alongside the practical challenges of getting primary ESG data, it’s easy to get distracted from the need to understand the nuances of these investor needs – to be clear about what is most material for each of these users of the data intelligence.

That means that the Information team are faced with the challenge of architecting a broad and deep solution. There is a demand for vertical integration, to have the ESG data from top to bottom: corporate, portfolio, fund, asset, property, unit to meter. A desire for a big green button that can be pressed to suck up all of the data from assets across a diverse portfolio and put it into a data lake in an organized way. That’s very difficult in a distributed, fragmented and heterogeneous market.

The technology to automatically collect energy meter data, to aggregate, analysis, present and share this data intelligently has existed for many years and yet the majority of this data is collected manually – prone to errors and often not available for quarterly reporting. Only 8% of energy data is automated according to our recent Insights survey. For water, waste and health & wellbeing data in buildings that is as low as 3%.

Across the ESG market, there is a need to use estimated and proxy data to fill the gaps. We need to think about what data is good enough because the climate change and environmental science shows that we are running out of time to act. There are risks in acting early, but for many assets, there will be greater risks if there is insufficient collective actions.

To look forwards and intelligently understand these risk scenarios we need to look at ESG accounting data alongside models for understanding the possible futures for real asset investments. This requires new sources of data and new tools. ESG investment data intelligence is an emergent specialist field and we’ll be publishing more insights in the coming months on where to look and what to consider for Investment, Information and ESG decisions.

If you would like more information on any of the above, please contact our experts today.