Comment
Bridging the data gap in sustainable finance
To successfully manage ESG and climate risks, the investment community needs to access good, accurate and complete data with which to model. Having accurate data means linking the company to the investor, thus accessing the underlying data with which to draw conclusions. Rebecca Healey writes
Firstly, the majority of ESG data available today is in the form of ratings which are subject to interpretation by ratings agencies, and may or may not be in line with an investment manager's view of ESG and are difficult to compare. Secondly, mandatory disclosures required by national governments may be different to the data an asset manager needs in order to invest. For example, a government may only be concerned about carbon emissions in their country, while an asset manager may only care about a company's carbon emissions across the globe. Looking at this at an international level is key. However, looking holistically at climate risk for companies not historically considered at risk, such as water requirements for clothing manufacturers, requires wholesale change of how risk is assessed.
Global regulatory standards can solve part of the problem. We, as an industry, need to work on how to bridge the gap between the data that an underlying investee company needs to produce on a regulatory level with what is required at an investment level and how that actionable data can be brought into the investment decision-making process. This is true not only at the firm level, but also at the subsidiary level and supply chain down to the financial product in question.
The FIX Trading Community is working with ISO and XBRL to address the challenges of bringing the data being curated into frameworks such as TCFD, IFRS and FSB and into the asset management OMS and EMS using ISO standards such as ISIN and LEI, or Legal Entity Identifier. This will be the means by which asset managers can assess, validate and take action through trading using FIX Protocol. Finding the means by which asset managers will be better able to stress test and scenario plan to improve understanding of the hidden transition risks - and take action on those risks - will be the means by which the investment community can best support the transition to a more sustainable economy.
Rebecca Healey is the Co-Chair EMEA Regional Committee & Co-Chair EMEA Regulatory Subcommittee, FIX Trading Community
Rebecca Healey,
Co-Chair EMEA Regional Committee & Co-Chair EMEA Regulatory Subcommittee, FIX Trading Community