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Key takeaways
Sustainability data's complexity and questionable quality are some of the main blockers for asset managers, asset owners, and wealth advisors to tackling sustainable finance disclosure. Understandably so. As of 2023, the sustainability data landscape is overwhelming. At the risk of sounding dramatic, we can confidently state: it looks like a jungle out there.
From our experience helping investors with sustainable finance and acquiring sustainability data from multiple providers ourselves, we learned that this complexity exists for two main reasons: the nature of sustainability information itself and the technical aspect of handling unstandardized datasets.
Below, we are listing the five main challenges we identify while working with sustainability data from the financial markets perspective:
1. Investors are being regulated before investees
The European Union started regulating sustainability reporting for the financial markets before regulating the reporting of companies. But investors need to acquire data from their investee companies to create their financial products’ sustainability reports. You can see how investors find themselves in quite a catch-22! Why? “The idea behind it is to give a competitive advantage in access for capital to those companies who are reporting and better performing”, explains Datia’s Head of Sustainability, Nora Sandahl.
2. Multiple data sources
Sustainability metrics are unstructured data being published by multiple stakeholders: companies that publish data on their websites or in their annual sustainability reports, NGOs, rating agencies, sustainability indexes, and external third-party providers who themselves might make use of all these sources listed.
3. Lack of standards for collection and interpretation
As of 2023, sustainability data is not subject to auditing requirements, as financial data is, and there is a lack of consensus on how it should be manipulated. An example to illustrate the consequences: the same KPI being offered by different data providers could have values with completely different orders of magnitude. The interpretation of the data may also be subjective to the needs of the data users.
4. Unstandardized distribution
The multiple sources of information distribute data in various non-user-friendly ways. Just handling the data, not to mention drawing insights from it, requires technical expertise. Ultimately, this makes working with sustainability data as a small team be deemed unrealistic altogether.
5. Manual work leads to the risk of human error
If an investor uses multiple data providers, he or she will certainly need to manipulate data in-house, manually. That includes transformation, cleaning, and validation. Therefore, obtaining just one indicator might require a lot of manual work and, with manual work, comes, certainly, the risk of human error which might ultimately impact your investment decisions.
5 solutions that will help investors overcome sustainability data issues
The good news is that this landscape will go through drastic changes in the next few years thanks, for example, to regulations such as the Corporate Sustainability Reporting Directive (CSRD). But technology innovation is already within investors’ reach and can dramatically improve the way they work with sustainability. Datia is proud to offer such solutions, as we will list below.
Here’s a list of five changes and technological advancements in the sustainability data landscape:
1. The Corporate Sustainability Reporting Directive (CSRD)
This new regulation will increase the availability and quality of sustainability data because it will force an estimated 50,000 companies with turnover in Europe to report on standardized sustainability metrics. It is also expected that the data reported by companies will be third-party reviewed by auditors. The information will need to be electronically tagged, which will help investors correctly identify the relevant KPIs. The bigger corporations that are currently regulated by the current Non-Financial Reporting Directive (NFRD) will need to report according to CSRD starting with the 2024 financial year reports. Then the scope of companies impacted will increase yearly.
2. Outsource your data acquisition process
At Datia, our team is responsible for acquiring data from a dynamic set of providers. The data is frequently examined so that outliers can be identified and the data points can be corrected by the data provider. Our software then automatically selects the best available information among the multiple providers to be used in your reporting. Our platform also gives you direct access to the documents where the data was sourced.
3. Use a flexible data universe
Investors can use Datia as their warehouse for their sustainability data. They can both rely on data sourced by Datia from multiple providers, as well as insert their data and let Datia’s software take care of the data processing steps. Therefore, there is no longer a need to manipulate the dataset by hand. Investors can also use a combination of both: Datia’s data lake and their data to reach the maximum possible quality and coverage.
4. Keep the focus on your portfolio
We understand that asset managers' and asset owners’ goal is to reach the best possible returns to their clients. And, of course, that might require periodic adjustments to the investment allocation. As your portfolio evolves, you do not need to worry about constantly recalculating your product-level and entity-level sustainability indicators. You can simply upload your portfolios to Datia automatically, using our automatic ingestion tool.
5. Let technology do (and re-do) the math
The technical standards on how to disclose sustainable indicators according to SFDR are constantly evolving, as well as other frameworks (EU Taxonomy and the European ESG Template, for example). Investors need to keep up with the regulatory readings to guarantee that their reporting is correct. Datia’s customers, on the other hand, are constantly informed of the changes and have access to Datia’s updated platform where formulas are adjusted to reflect the changes well ahead of any deadline. No need to revisit those cumbersome calculations again and again.
See below a summary of how Datia can help you improve your work with sustainability data by eliminating manual data manipulation.
You can learn more Datia can help asset managers, asset owners, and wealth advisors overcome sustainability data challenges in this 30-minute webinar.
