Across the asset-management world, interest in Environmental, Social, and Governance (ESG) performance has soared since the launch of the UNPRI (Principles for Responsible Investments) in 2006. Integrating ESG factors into investment decisions and portfolio management strategies is 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.
ESG software is the obvious way to streamline the ESG data collection, questionnaire distribution and management process. 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.
Here are some of the reasons why investors are seeking ESG software to manage portfolio data:
Enables the monitoring of ESG performance 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.
Using a central software platform to collect and manage the ESG performance data of portfolio companies enables investors to assess performance data on an ongoing basis, rather than in one moment in time. By sending questionnaires directly to portfolio companies through a software solution, deadlines, flags and notifications can be set which means that investors can be automatically alerted when it’s time to request updated information or address an expired document. Scoring of portfolio companies also ensures that year on year improvements can be realised and minimum performance thresholds can be met.
Improves 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.
ESG software enables investors to customise questionnaires and data collection to ensure they are collecting the right data. Once collected, the software will enable them to aggregate consistent, comparable and accurate ESG performance data from across funds and portfolios. It also enables investors to compare, benchmark and score portfolio companies and view key information across various metrics and KPIs.
Saves time and resource
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.
Through the use of software, data collection, management and reporting can all be automated, on a large scale, which leaves investors more time for analysis. Using software enables investors to move their focus away from just data collection and on to in-depth reporting, analysis and informed decision-making.
Reduces ESG risk
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.
ESG software has functionality for investors to easily identify and address ESG risk. Company responses can be benchmarked, assessed and scored against pre-defined criteria using automated analysis tools such as scorecards and performance scores can be generated. High-risk responses can then be easily identified and an action plan solution can be set. Using an ESG software platform, Investors can directly communicate with their portfolio companies, set actions with deadlines, define and track defined KPIs.
Facilitates communication and engagement with investments and investors
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.
A credible software solution will enable communication between both parties and facilitate direct online conversations around very specific issues. Beyond due diligence and receiving alerts for flagged issues, a software solution enables investors to identify and engage with portfolio companies and help them to improve areas of ESG underperformance. This enables the building of more sustainable and collaborative relationships.
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.