Environmental, social and governance (ESG) principles are being woven into the entire fabric of investing, becoming an integral part of weighing the risks and rewards of funding business propositions and initiatives. As such, the need for reliable and useful data on ESG among corporates, investors and service providers has increased exponentially in the past few years.
This growing demand is felt throughout the investment life cycle from pre-trade assessment and investment decisions through to post-trade reporting and monitoring. A lot of the discussion around ESG data, as well as regulation, has focused on pre-trade as this is where investment decisions are made. But ESG data is equally important in post-trade as it is at this stage where progress towards the attainment of objectives is determined, where the promise and the delivery are compared.
“In the post-trade space we see the value in continuing to support and service our clients as they develop their own sustainability strategies and goals,” says Hai Jade Fuan, head of product commercialization for financing and securities services at Standard Chartered.
As a service provider, Standard Chartered sees its role in the post-trade space evolving. “It’s an opportunity for us to integrate another data stream into the services and products we provide our clients,” Fuan says. “This may be to facilitate their needs in terms of ESG reporting – whether it’s internal reporting requirements or external reporting for their regulators and end-investors. There’s also an opportunity in the post-trade space for data aggregation. What data does our client need and where should it go? Which format should they receive it in? We have to consider which channels are necessary for delivery and the availability of the data.”
As demand grows, challenges such as data complexity, fragmentation, and availability or scarcity of data are confronting both providers and consumers.
In Europe and the United States, reporting frameworks are already well established. In Asia, however, the number of companies that are disclosing data is still relatively low.
Working with various data vendors is another challenge. “While it’s always great to have a lot of different options as frameworks develop, the data that becomes available is not always comparable. Different vendors use different rating methodologies and there’s complexity in understanding that and getting the right expertise into an organization to be able to interpret them,” Fuan explains.
Indeed, acquiring the talent to sift through the often-overwhelming amounts of data in the ESG space is another key issue. “When we talk about post-trade providers, a lot of people in this space have spent their entire careers becoming post-trade experts. And to introduce that ESG element is a challenge in terms of talent development or bringing in new skill sets.”
It is one thing to have frameworks to screen ESG-labeled activities in an effort to prevent greenwashing. It is another going into the nitty-gritty of compiling, sorting and analyzing data to ensure that no manipulation is taking place. This is one of the most challenging aspects of post-trade servicing as far as ESG is concerned.
“How do we validate that it actually is what it says it is? Who can provide that sort of third-party validation?” Fuan asks. “What is needed from a KPI perspective, what is useful from a reporting perspective, and what does that data mean? How do you translate it into impact, and what does that impact look like?”
There are no simple solutions to overcome these challenges, but Fuan underscores the need for an open dialogue with clients, particularly in terms of understanding what they need and how they are evolving to achieve their sustainability objectives.
"In general, financial institutions recognize the importance of the ESG theme and Standard Chartered is incorporating this across all our business lines. It’s a core pillar of our business strategy and the way that we want to operate as a bank,” she says. “From a post-trade perspective, it’s very much in line with the stance that we’ve taken in terms of technology and innovation and how we grow the role that we play today.”
Standard Chartered also recognizes its role in the industry as a whole. “We want to engage both our clients and our peers in that discussion; what ESG data servicing should look like for post-trade and how we can better understand this space and add value,” Fuan notes.
