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Ahead of the Sustainable Investment Forum Europe 2020 taking place in Paris on the 10 March, we caught up with Willem Keogh, Head of ESG and Thematic Index Solutions at Qontigo, to discuss the use of ESG data as a tool to encourage innovation.
Q. How important is ESG data mining to integrate data successfully into institutional portfolios?
It is very important. The quality and accuracy of ESG data will determine how successfully your sustainability objectives are incorporated into a portfolio and that no undesired or unforeseen effects - either from a risk or returns perspective - are created. It is crucial to separate the facts from the noise and the false signals.
It is important to stress the need to avoid falling into common pitfalls of data mining that may lead to spurious or erroneous conclusions. Things like false correlations, random combinations, samples and size biases are obstacles in the way of correct data analysis. Increasing ESG data will improve this analysis, but investors should make educated and conscious readings of the data during the investment process.
The growing availability of and possibilities around ESG data are improving data-mining capabilities when it comes to securities analysis and hence supporting ESG integration. With more regulators issuing new standards of sustainable investing and reporting, and a fast-growing number of financial institutions and companies complying with them, the task for portfolio managers to observe sustainable principles with skill and accuracy, and fully integrate ESG into portfolios, is becoming easier. For us index providers, this has opened up a historical opportunity to efficiently utilize those data streams in a systematic way.
At Qontigo we work with leading ESG and carbon data providers, including Sustainalytics, CDP and ISS Ethix. This guarantees we have rigorous and robust sources that underpin the strength of indices, and we'll make these available wherever there is objective and reliable data.
You can now integrate the type of ESG data of your choice, be it backward-looking or forecast, qualitative or quantitative, as well as choose between either a risk-management focus or an impact one. I am aware that there is a long way ahead in terms of improving the consistency of data and its availability in smaller markets, but the direction we are traveling is very promising.
