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Published
June 2, 2021

Europe continues to lead on driving sustainability investment, with a suite of regulations that require companies to quantify ESG risks and standardize their measurement. However, with a patchwork of standards, gaining compliance can be challenging. In a recent webinar series, we discussed the European regulatory environment focusing on the EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR). The series also included polling on how investors are approaching ESG integration. Access the replays and findings from the webinars below.

Webinar findings

What is the main driver of your firm in taking ESG issues into consideration in your investment analysis and decisions?

Respondents in the DACH region1 (Germany, Austria and Switzerland) and France2 ranked client and investor demand as the main driver in considering ESG factors in investment analysis and decisions. Respondents in Italy3 ranked regulation as the top driver.

Key takeaways: ESG is more developed in DACH and French markets, while in a less ESG mature market like Italy, clients are more reactive to regulation vs taking a proactive approach. Access the webinar replays to learn more about the European regulatory environment and how ESG data can help you gain compliance.

What challenges restrict your firm’s ability to use ESG in your investment analysis and decisions?

Lack of appropriate quantitative ESG information and unstructured/scattered data were ranked highest across all regions4.

Key takeaways: A key factor could be the lack of standardization in ESG data reporting and collection. As the ESG market has grown, data providers have responded by continuing to expand their data sets. However, with a lack of standardization and transparency in ESG reporting, data can be inconsistent and out of date. The same is often said for ESG ratings which lack standardized methodologies resulting in diverging and incomparable ratings. Until recently, investors had relied on ESG ratings produced by third party providers as the main input for their ESG decision making. Now, investors want to go further and look behind the ratings to the underlying company data to make their own assessments. We explored the need for comparable, granular ESG data in a recent blog: Data rich: why having granular ESG data matters.

Which factor does your firm find the most challenging and difficult to analyze, and integrate due to lack of metrics?

Social was the most challenging factor to analyze and integrate due to lack of metrics across all regions5.

Key takeaways: This is not surprising given social metrics (i.e. diversity and inclusion policies, workplace health & safety) are often harder to quantify and measure vs environmental points like carbon emissions, energy use etc which have clear definitions and measurements. Although challenging to measure, social factors are still key for risk management. In particular, we have seen them brought to the forefront during COVID-19, as companies consider its impact on their workforce. Through the ICE ESG Reference Data service, we capture many social data points such as benefits, diversity and inclusion policies from multiple data sources, such as company-reported and publicly-available documents. We integrate these into a data model and provide them to our clients in a consistent format, allowing them to compare social data points like-for-like across different companies.

What system do you use to implement ESG?

A mixture of systems came out the highest for DACH6 and France respondents7.

Key takeaways: Internal analysis of third party’s data came out second highest for respondents in France and Italy8, demonstrating the increasing demand for ESG data from providers. As ESG has grown in popularity, the datasets and techniques to integrate ESG factors into the investment analysis and investment decisions process has grown with it, providing investors with many methods to choose from.

When choosing an index, what approach do you prefer?

In DACH9 & France10 best-in-class index approach was the most preferred.

Key takeaways: As discussed, DACH and France are more mature markets for ESG investing (with earlier local regulation and investor behaviour change). As ESG investing has matured we see moves from exclusionary indices (where only the worst performers are removed) into best in class indices (which capture a positive focus on the selection of constituents). This mirrors the demand ICE has seen for its best in class ESG futures products.