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Earlier this year FTSE Russell published their annual global asset owner survey, focusing on their attitudes, priorities and decisions being made on sustainable investment. You can read the full results of the survey here.

One of the key readings taken from this survey was that over half of asset owner participants believe that the primary obstacle to increased sustainable investment adoption is concerns about availability of ESG data and the use of estimated data.

We have written about the issue with ‘guesstimated data’ before.

Some large ESG ratings firms have padded their systems with estimates and averages in order to provide larger (and more expensive) coverage and more ‘comprehensive’ data solutions.

However, there are many issues with this approach – three key problems being:

1. Short-termism is a breach of fiduciary duty.

Many investors blindly trust these large legacy brands and their ESG ratings; in fact some asset owners demand that their asset managers use one of them.
However, it should be noted that relying on the estimated ESG data provided by these firms could constitute a breach of fiduciary duty.

That is to say, relying on data you can not validate or interrogate in order to satisfy a short-term reporting or regulatory requirement is not acting in the best interest of the investors that these funds truly serve.

2. The word ‘estimated’ suggests an analyst might have studied that company and its industry and made an informed company-specific estimate.

In reality, although their precise methodology is typically opaque, the estimated value is just an average, calculated from that company’s regional and sectoral peer group. That’s why we call it a ‘guesstimate’.

The example we give to investors is that it is like hiring an analyst after you were reassured that they got 70% in their final mathematics exam. You then learn that actually, they never showed up for that exam and this score was in fact a class average. Which leads onto the next key point:

3. It is not clear what company date is factual and what is estimated.

Depending on the third party data provider you may be subscribed to, you can sometimes click through some of the data they have collected – for example, a company’s CO2 emissions number.

But you won’t know whether it is an actual value disclosed by the company, or a value estimated by the many analysts working for that ratings firm.

No estimated data – no black boxes.

Here at Integrum ESG, we have always committed to never using estimated data and only providing a ‘glass box’ to our investor clients.

Our affordable, customisable and transparent ESG solution was built by investors with over 20 years of experience in equity research – therefore we understand the real dangers of using opaque data which is only updated once every so often.

But we are always looking to improve. We want to hear from you – if there is anyway we can improve our data solution to better suit our investor clients and your needs, we want to hear it.