Across the asset-management world, interest in Environmental, Social, and Governance (ESG) performance has soared over the past few years. ESG factors into investment decisions and portfolio management strategies are increasingly becoming the norm and investors are seeking to better understand a company’s long-term value by looking at ESG information.
However, this trend in responsible investment and ESG reporting is presenting investors with many challenges when it comes to gathering, maintaining, and analysing ESG data. Gaining access to accurate, credible, and consistent ESG data and supporting information is difficult. Investors are now looking for purpose-built ESG software platforms to collect, track and analyse data and material ESG KPIs from their portfolios on an ongoing basis. ESG software is the obvious way to streamline the ESG data collection, questionnaire distribution and management process.
In this article, we will explore some of the reasons why investors are seeking ESG software to manage portfolio data.
What Is ESG Investing?
ESG investing stands for Environmental, Social, and Governance investing. It is an investment strategy that incorporates environmental, social, and governance considerations into the selection and management of investments. The goal of ESG investing is to generate long-term financial returns while also addressing societal and environmental concerns.
Benefits of ESG investing include:
- Improved risk management: ESG factors can serve as early warning signs for potential problems that could negatively impact a company's financial performance.
- Better alignment with personal values: ESG investing allows investors to align their investments with their personal values.
- Improved long-term financial performance: Companies with strong ESG practices tend to have better long-term financial performance.
ESG investing addresses People, Planet and Profit, as it looks at how companies operate in terms of environmental impact, treatment of workers and community, and governance.
▶ 53% of companies with more than US$10b revenue per year say that they “face short-term earnings pressure from investors, which impedes our longer-term investments in sustainability.” (source)
▶ 46% of North American investors agree that the lack of robust ESG data is one of the main ESG adoption hurdles. (source)
▶ 91% of business leaders believe their company has a responsibility to act on ESG issues. (source)
ESG Software: What Is It?
ESG software is a technology that helps investors assess and analyse the ESG performance of existing and potential investments. It provides a centralised platform to collect and manage ESG data and provides investors with a comprehensive view of a company's sustainability practices, including their impact on ESG practices. This information can be used to make informed investment decisions that align with an investor's values and goals, as well as to identify companies that are leading the way in sustainability. ESG software typically includes features such as data analysis dashboards, carbon emissions calculation, customisable reporting options, and user-friendly tools to help investors make investment decisions based on accurate data.
Reasons why investors are seeking ESG software to manage portfolio data
Sustainable investing has become increasingly important for investors who want to align their values and investments with the long-term health of our planet and society. As the demand for ESG-focused investment strategies continues to grow, ESG software has emerged as a crucial tool for investors who want to manage their portfolio data effectively. ESG software provides investors with real-time access to ESG data and analysis, allowing them to assess the ESG performance of their investments, set goals, and monitor their progress towards a more sustainable future.
1. Monitor ESG Performance in Real-Time and Over Time
The monitoring of performance over time is essential to understand long-term risks and opportunities. To build a sustainable long-term investment strategy that will support investment decisions, investors need access to current and correct data for both now and in the future – not just a time-stamped data set.
2. Improve Transparency and Accountability
Access to accurate and consistent ESG data to enable responsible investment decisions is now more important than ever. There is a plethora of ESG frameworks and guidelines available for ESG reporting but, for investors, working out which ESG metrics to request from companies is challenging. Before seeking data, investors need to be sure that that data will reliably support their investment decisions and accurately enable their long-term sustainability strategy.
3. Manage Funds and Portfolio Companies Seamlessly
Managing funds and portfolio companies can be a complex and time-consuming task for investors, especially when it comes to incorporating ESG into their investment process. ESG software can simplify this process by providing investors with a centralised platform for managing their portfolio data. This includes ESG data and analysis, allowing investors to track the ESG performance of their investments and monitor changes over time.
4. Save Time and Resources
Many firms are still using spreadsheets and emails and, as data gets more complex, these processes become cumbersome, time-consuming and prone to error. Manual processes are not only a security risk but are also prone to risk and error and are extremely heavy on time and resources.
5. Meet The Latest Reporting Standards
Meeting the latest reporting standards is crucial for investors who are committed to sustainable investing and ESG, as it helps to ensure the accuracy and reliability of ESG data. By meeting these standards, investors can be confident that the ESG data they receive is relevant, credible, and up-to-date. This helps to avoid potential risks associated with using inaccurate or outdated ESG data, such as making misguided investment decisions. In addition, meeting the latest reporting standards is important for investors who are looking to demonstrate their ESG commitment to their stakeholders.
6. Reduce ESG Risk and Get Better Returns
Investors are seeking to understand the ESG-related business risks and opportunities companies face. This includes assessing the potential impact of ESG factors on a company’s long-term business model and the resilience of companies to adapt to ESG changes. Over time, these considerations may reshape competitive advantages and ultimately the sustainability of business growth and long-term value creation for shareholders.
7. Facilitate Investments and Investor Engagement
Portfolio company engagement in ESG performance can be a challenge for investors and sometimes there can be little to no communication lines between the two parties. There are huge benefits to communication and engagement between asset managers and their portfolio companies.
8. Make Market and Competitor Outperformance Easy
ESG software makes market and competitor outperformance easy by providing access to ESG data and analysis, allowing investors to track their investments' ESG performance over time and compare it to the performance of their peers and competitors. This helps investors to identify areas for improvement and make informed decisions about their investments that can lead to better ESG outcomes.
9. Identify Areas of Improvement and Set Goals
Having access to ESG data and analysis allows investors to assess the ESG performance of their investments and compare it to their peers and competitors. With this information, investors can identify areas where they can improve their ESG performance, set specific ESG goals, and track their progress over time.
10. Monitor and report progress against carbon reduction targets
With a surge in the setting of Science-Based Targets (SBTs)and net-zero pathways, investors are using ESG software to accurately measure, monitor and report carbon performance. Calculating, reporting, and reducing Scope 3 emissions in accordance with the GHG Protocol is challenging for investors because the required data comes from outside of its own operations.
Obtaining accurate GHG emissions across an investment portfolio has long been a pain point for investors and GPs have often employed consultants to calculate the GHG emissions from their portfolio which can be limited, lengthy and expensive. The right ESG software solution leverages primary data, industry-approved estimations, data validation tools and approvals to ensure verification-ready data throughout the year.
Greenstone’s investor ESG software – InvestorPortal
ESG reporting for private capital investors is complicated by both the lack of regulation and the lack of clean and effective gathering, maintenance and analysis of ESG data. In public markets, there are multiple providers of ESG data but very little correlation, and the tendency to scrape data has its own problems.
Greenstone’s investor ESG software - InvestorPortal - enables General Partners to collect accurate, transparent ESG data for their prospective, current and past portfolio companies, and also to share company, fund and portfolio level analysis and reports with their own investors. Talk to Greenstone today to find out more.