What does the investment community think about E&S data?
Most buy-side respondents find ESG metrics necessary to their investment decisions/recommendations. Globally, nearly nine in 10 rate governance metrics as important, compared with almost six in 10 who place importance on environmental metrics and 57 percent who rate social metrics.
The value attached to governance is similar across the regions, with 90 percent of respondents in Europe, 86 percent of respondents in North America and 85 percent of respondents in Asia rating it as important.
But there is a big regional difference in how buy-side respondents interpret E&S metrics. Nearly eight in 10 respondents in Europe say environmental metrics are important, compared with just 50 percent of respondents in Asia and even fewer in North America, where just 46 percent say environmental metrics are important to their investment decisions/recommendations.
The importance respondents place on social metrics follows a similar pattern: more than seven in 10 buy-side respondents in Europe say social metrics are important, while only half the respondents in Asia and 44 percent of respondents in North America say the same.
We asked buy-side respondents for their comments on preferred E&S data sources in an open question. Responses from buy-side respondents in Asia were too low to be statistically relevant for this question.
One in five buy-side respondents globally think their firm's proprietary research offers the best methodology for evaluating environmental issues. Respondents in North America are four times more likely than those in Europe to state a preference for their own company's research.
There is a similar pattern with comments on social metrics, with just over a quarter of global buy-side respondents saying their firm’s own internal research offers the best methodology. Again, respondents in North America are more likely than their European counterparts to prefer their own firm’s own internal research: 40 percent versus 19 percent.
The prevalence of E&S data providers has grown significantly in recent years, but not all investors use them. Globally, 42 percent of buy-side respondents don’t subscribe to any providers. Regionally, this breaks down to 50 percent in North America, 50 percent in Asia and 33 percent in Europe not using any E&S data sources.
Among the global buy-side respondents that subscribe to E&S data providers, the median number of subscriptions is two. Respondents indicate that they use this data in tandem with other sources or their own internal analysis.
Less than half (44 percent) of global buy-side respondents use E&S data to screen for investment risks, and a similar number (40 percent) use it to screen for opportunities.
Respondents in Asia (55 percent) and North America (48 percent) are more likely to use E&S data to screen for investment risks than are respondents in Europe, who use E&S data in nearly equal proportions to screen for risk (37 percent) and investigate opportunity (41 percent).
Only a small proportion (16 percent) of global respondents use E&S data to identify opportunities. Respondents in Europe are almost four times as likely as respondents in Asia to use E&S data to identify opportunities, with 22 percent of respondents in Europe and just 6 percent of respondents in Asia using it for this purpose. In North America, only 15 percent of buy-side respondents use E&S data to find investment opportunities.
In seeking to find which metrics matter most to investors, we asked both buy-side and sell-side respondents. When it comes to environmental metrics, more than half of sell-side respondents look for carbon reporting/emissions in environmental reporting. A fifth also look for evidence of a firm’s environmental impact, while both carbon footprint and water waste receive the attention of 13 percent of sell-side respondents.
The main focus for buy-side respondents in environmental reporting is the same as sell-side respondents: carbon reporting/ emissions (31 percent). But buy-siders typically have a wider range of environmental interests, with both greenhouse gas references and water reporting/usage being looked for by 18 percent of buy-side respondents and both environmental impact and carbon footprint being important to 16 percent of buy-siders.
Regionally, 44 percent of buy-side respondents in Europe look for carbon reporting/emissions in environmental ratings, more than double the number of respondents in North America who do so. The responses from buy-side respondents in Asia were too low to be statistically relevant for this question.
Sell-side respondents look for risk mitigation concepts in social reporting, with health & safety and labor practices both cited by 27 percent of respondents, while product safety, employee turnover/retention and CSR are each mentioned by 13 percent of sell-siders.
By contrast, buy-side respondents place more importance on management and employee diversity, with just over a quarter of respondents citing management/board diversity and 24 percent citing employee diversity as important. Buy-side respondents also place importance on a variety of risk metrics: HR employment issues/labor practices (16 percent), employee turnover/retention (11 percent), corporate governance (11 percent) and CSR (11 percent).
Buy-side respondents in North America focus on diversity and governance more than respondents in Europe, with nearly a third citing management/board diversity and nearly a quarter citing employee diversity. A further 23 percent cite corporate governance as important.
The responses from buy-side respondents in Asia were too low to be statistically relevant for this question.
Click for interactive graph
As previously mentioned, investors subscribe to a median number of two environmental and social data providers. Just over half of buy-side respondents who subscribe to a provider use Sustainalytics ESG Ratings and Research, while 48 percent subscribe to MSCI ESG Ratings. The other data providers in the top five are ISS Corporate Solutions, used by 30 percent of global respondents, Morningstar (29 percent) and Refinitiv (14 percent).
More than half of respondents in North America and half of respondents in Asia subscribe to MSCI ESG Ratings. There’s a strong preference for Sustainalytics ESG Ratings and Research among respondents from Europe, with more than six in 10 subscribing to this provider.
