22 Jun 18 | Opinion
Investors love big data. In fact, asset managers that are in a position to take advantage of data, machine learning, and artificial intelligence are most likely to thrive in a future dominated by lower fees and weaker fund flows, according to Boston Consulting Group.
And a recent report by S&P revealed that 80% of asset managers are planning to increase their investments in big data over the next 12 months, with almost 20% expecting that investment to increase by more than a fifth.
This evolutionary demand for better, more detailed and useful data coincides with the appetite among investors to develop more environmental, social and governance (ESG) products and portfolios. In turn, the monitoring, reporting and disclosure of more sustainability information among companies has been warmly welcomed by a growing number of investors.
While many companies still struggle to keep pace with this rapid increase in demand for new information and the added scrutiny deployed by investors and other stakeholders, a number have realised the opportunities presented by enhanced data flows.
Take the questions asked of companies by disclosure tools such as CDP, which is used by a huge network of investors representing more than $100tn in assets under management, as an example. CDP has a framework to develop an environmental strategy that builds resilience, giving significant insights into a company’s own operations, which in turn identifies where risks and opportunities might lie.
A company can also use data to benchmark how they are performing compared with their peers or competitors. Year-on-year reporting is also a useful way to track progress and find out which actions are having the greatest impact. “Crucially, the data they collect, both in their own organisation and through their supply chains, can help justify why it makes sense to be sustainable,” says Dexter Galvin, CDP’s global director of corporations and supply chains. Emissions reductions equivalent to 551m metric tonnes of CO2 were reported to CDP by suppliers worldwide in 2017. This resulted in cost savings of around $14bn for the firms involved.
Technology is playing an ever bigger role in helping companies collect, manage and understand the data gathered to help inform decisions. While many still make use of simple spreadsheets, a wealth of different online platforms and software packages has emerged to cater for all needs – some off-the-shelf products, some bespoke and tailored for companies, particularly if they have a complex business structure with multiple subsidiaries and premises to be monitored.
However, regardless of how and where data is gathered, creating a complete and verified dataset is important, as is the internal personnel capacity and capability to make the best use of it.
So, what does the future hold and how will data be used in the future to support sustainability efforts – and stakeholder understanding? Evidence suggests data will become much more integrated into products, services and models. CDP environmental data is already helping to power financial products such as the STOXX Low Carbon Indices, for example.
The incorporation of environmental data into mainstream financial reports, as recommended by the Financial Stability Board’s taskforce on climate-related financial disclosures, will also facilitate data integration further, making it more possible to examine the connection between sustainability performance and associated commercial growth and value.
“We’ll also probably see more and better real-time sustainability data which will improve decision-making capabilities, assuming the quality of the data can be guaranteed,” adds Galvin. We may also start to see the emergence of hyper-transparency facilitated by ledger technologies such as blockchain, which will allow companies to pinpoint their true sustainability impact, taking sustainability-as-a-differentiator to a whole new level.