The trends of 2021 are gaining pace in 2022, with regulation underpinning many of them.
How can organisations keep up?
Globally and locally, regulatory frameworks around environmental targets and industry management are gaining momentum. The Paris Agreement signed during COP 21 in 2015 to limit global warming, was reinforced at the COP 26 summit in Glasgow.
Australia adopting a guided approach
In response to the government’s commitment to 2050 net zero emissions, Australian Securities & Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) are taking a guided approach to environmental regulation. Benchmarks and polices are being set to assist the financial services industry manage climate-related risks and develop a robust ESG framework.
APRA released in 2021 for super trustees, insurers and banks its final prudential practice guide: CPG 229 Climate Change Financial Risks which defined governance, risk management, scenario analysis and disclosure of climate-related financial risks.
Through industry submissions and working closely with government, the Australian Sustainable Finance Institute (ASFI), is also examining ways to develop an Australian sustainable finance taxonomy, a set of common definitions for sustainable economic activities. The initiative builds on regulation already underway in regions such as the European Union, to create credible and transparent definitions for sustainable investments.
Many of the proposed changes point to regulators and industry bodies striving to ensure a sustainable and healthy ESG market. Whether these directives become mandatory or not remains to be seen, but organisations need to start making changes now and herein lies the challenge.
Regulation and the ESG data reporting challenge
Institutional investors are placing a high priority on investment management research, reporting and disclosure capabilities, as regulators demand clearer, more consistent, and transparent standards around ESG analysis and reporting.
Being able to meet ESG requirements goes hand-in-hand with the ability to access meaningful ESG data on investments.
Manaos, BNP Paribas’s open-architecture ESG platform enables institutions to meet the challenges of increasing regulation, ESG data sourcing management and reporting.
In the BNP Paribas 2021 ESG Global Survey of institutional investors, 59% of respondents cited issues related to data as one of their top challenges to ESG integration. Barriers related to quality, transparency, and consistency of data.
Data consistency is driven by ESG data coming from multiple sources and comprising diverse viewpoints. However, achieving standardisation across the various sources isn’t easy. While there are multiple ESG providers to choose from, it’s virtually impossible for any one single provider to cover all ESG themes.
Therefore, availability of data isn’t the biggest challenge. As sustainable investing has grown in popularity, so has the volume of data to support it, particularly in the area of ESG ratings and rankings. The problem lies in that the data is often fragmented, and it can be an arduous task organising and integrating it into investment decisions, particularly if it’s done manually.
The ESG winners will be the ones, therefore, who are able to harness the plethora of data effectively; and this is driving institutions to take strategic decisions to either outsource or build in-house ESG reporting capabilities.
The in-house route to invest in robust back-end systems able to track and analyse vast data sets, usually comes at considerable on-going cost, coupled with managing the complexity associated with data quality, distribution, user experience and reporting. This becomes even more prevalent as organisations continue to build in-house ESG research teams.
ESG is a relatively young discipline and will take time to reach the kind of consensus that mainstream credit agencies have achieved. However, there is a light at the end of the tunnel. Open architecture solutions can help tackle and solve the data challenge, at the same time connecting investors and managers to a wider range of providers.
Open-architecture solutions; the way forward
As a custodian handling vast quantities of data BNP Paribas provides analysis to help clients improve decision-making, but has also co-created solutions with clients and partnered with fintechs to leverage technologies and expertise that are sophisticated and robust enough to standardise and aggregate data for analytical and reporting requirements.
Open-architecture, technology-oriented applications such as Manaos have a critical role to play as ESG trends gain further momentum,said David.
To help investors meet the challenges of increasing regulation, ESG data sourcing management and reporting, BNP Paribas launched an open-architecture ESG platform called Manaos* in 2020. Manaos has been progressively rolled out worldwide and is now available in Australia.
Designed as an open-architecture platform for institutional investors and asset managers of all sizes to manage their ESG requirements, Manaos acts as a data exchange interface and an open-architecture ESG marketplace. It brings together ESG information from a growing set of suppliers around the globe. Manaos provides users with an ESG rating for a given portfolio using multiple data sets, screening it against the different ESG principles and data providers’ methodologies. By providing multiple feeds into a wide variety of specialist areas and data sources, Manaos helps overcome challenges around inconsistent and conflicting ratings. This enables investors and asset managers to better assess their portfolios and provide the basis for proprietary analysis.
Users can check and test a variety of fintech and traditional ESG providers and choose the one that will be the most suitable to their or their client’s needs. Rather than taking weeks or months doing due diligence and research on individual data providers, clients can quickly and efficiently test new ESG providers via the platform. Manaos can also go a step further providing climate reports, carbon footprint reports and scenario analysis.
In terms of scope, Manaos is a solution designed for asset managers, asset owners, private banks, and corporates and provides a complete view of the ESG quality of their assets to share with their stakeholders.
The platform is also accessible from a cost standpoint due its freemium model – meaning clients can access basic features free of charge, with the option to upgrade.
With all these benefits it’s easy to see that open-architecture, technology-oriented applications such as Manaos, the BNP Paribas Securities Services’ platform, have a critical role to play as ESG trends gain further momentum.
Data and ESG reporting – a competitive advantage
As the regulatory agenda around ESG continues to take shape, asset owners and managers will increasingly rely on innovative solutions to enable them to take the lead on ESG reporting. With its stated sustainability commitments, expertise in management large data-sets, and the safety of being a Global Systemically Important Bank, BNP Paribas is well positioned to help clients and broader industry participants optimise their ESG data and reporting processes, helping to establish a competitive advantage in the process.
* Manaos is developed by AELX SAS, a technology subsidiary of BNP Paribas Securities Services.
Please contact us if you have any questions or would like to receive a demo of Manaos.
Open servicing platforms can help tackle issues with ESG data quality and consistency, while connecting investors with a wider range of providers.