4 ESG challenges faced by financial providers

ESG reporting is critical for all financial providers, helping to strengthen your portfolios, inform future investment decisions, and mitigate risk. But while ESG reporting has come a long way over the past few years - with 85% of investors considering ESG factors in their investments in 2020 - there still remain some key challenges.

Today we’re going to run through some of these challenges and explore the opportunities each gives you, allowing you to approach your ESG reporting in a more robust, effective way.

#1 Convoluted processes

Unlike financial reporting - which is standardised and commonplace - ESG reporting isn’t. It’s yet to be taken up in any consistent, industry-standard way. A lot of ESG-related issues aren’t mandatory, meaning organisations’ efforts vary considerably. And the processes to collect and analyse data are often fragmented and labour-intensive.?

In 2020, 48% of investors considered the sophistication of impact measurement management practice a significant challenge. 38% considered it a moderate challenge.

Financial institutions often won’t have one central hub for all aspects of their ESG reporting. They’ll draw from many sources of information and data, performing manual data entry and comparison. They’ll juggle various platforms for different regulatory requirements or conversion metrics. And they’ll usually have to spend time chasing the businesses they invest in for their ESG data. Or waste time searching for the ESG-related information they need in the moment.?

These convoluted processes are a significant drain on your time and resources.

The opportunity - Instead of spreading ESG reporting over multiple systems and processes, financial institutions stand to gain from investing in one, overarching platform for all things ESG. This way, you have somewhere to go for quick, real-time summaries of your portfolios and can put large aspects of your ESG reporting on autopilot.

#2 Out-of-date data

What your investments did X number of weeks or months ago is irrelevant to the present market conditions. So why are you using this to make critical decisions regarding your portfolios? Business changes constantly - both your own and that of your investments. And to make the best decisions and minimise risk, you want to be drawing from relevant, recent data.?

You want to know exactly how each of your investments are performing on their ESG targets. And to easily be able to factor this into your decision-making process. Monthly or annual snapshots aren’t enough for real-time interrogation of your portfolio’s impact.

29% of investors considered data on investment products and opportunities a significant challenge. While 46% considered it a moderate challenge when it comes to impact investment.?

The opportunity - Performing real-time and ongoing data capture ensures you’re always making decisions off the most up-to-date information. It enables you to track your investments’ ongoing efforts and progress and better manage your portfolios alongside changing market conditions.

#3 Tunnel vision for compliance

Staying compliant is key, and a large aspect of ESG reporting, but it’s not everything.

Many reporting solutions use standardised measurements to cover all mandatory disclosures. But these leave out a lot of nuance and extra detail that you could benefit from.

What about your individual priorities and goals? What about the bigger picture behind how your investments made the progress they have? Or what this progress actually means for people and the planet?

You don’t want to get so tied up in numbers that you overlook the stories behind the progress. Keeping compliant should only be the start when it comes to your ESG reporting. You want to feed in data about the causes you care about - not just what you’re obligated to report on.

The opportunity - Good ESG reports need to focus on more than just metrics and numbers. They need to show how businesses are championing responsible business practices, what initiatives they are doing to improve their scores, and what that data looks like in the real world. And they should move past compliance to recognise all the other ways your portfolios are having a positive impact.

#4 No easy benchmarking

Urgent decisions need quick and easy access to the right data. You need to identify how your investments are performing, comparing them to one another, and benchmarking against your chosen targets and KPIs.

However, it’s not always so simple. Like we mentioned above, a lot of financial providers will have their ESG data spread over multiple spreadsheets and systems. And then their goals and targets will be somewhere else entirely, leaving them to manually compare the two.

They can’t quickly see how one portfolio is performing over another. Or which specific initiatives and activities are exceeding expectations - or failing to meet their KPIs. It means portfolio management becomes a much larger undertaking than it needs to be.

The opportunity - To manage and prioritise your portfolios, you need a clear understanding of how they’re performing according to predefined targets and expectations. You need to be able to benchmark progress and compare investments in real time, visualising them side by side.

ESG-related issues have moved to the foreground of business and investment in recent years. But we still have a long way to go in creating a resilient, consistent methodology for capturing and analysing ESG disclosures. The sooner we start to overcome some of these commonly faced challenges, the sooner we can create more robust, ethical investment portfolios.

At Impact, we empower organisations to maximise their impact through the seamless measurement, evaluation, and reporting of ESG-related activities and initiatives. To find out more about what our platform could do for you, schedule a demo or get in touch with the team on 0161 532 4752.