When it comes to selecting the right responsible investments, there is a wide range of tools and information sources that advisers can use, says Glassey. “ESG data sets are proliferating rapidly, and it is estimated that there are 600 different rating systems globally.”
Advisers therefore have their preferences and different approaches.
Kate Capocci, associate director and responsible investment lead at Smith and Williamson, says: “We do a lot of research in house to understand preferences and we have a proprietary, in-house process, where we look at managers and their philosophy, team, processes and how they use responsible investment factors. We also use MSCI ESG Manager as a tool.”
The tools on offer can vary and have their limitations, however, as Paris Jordan, multi-asset analyst at Waverton Investment Management, observes: “Different tools have different aims, so how good they are is dependent on what information an adviser is seeking.”
And the lack of standardisation and consistency can potentially be a headache for advisers when it comes to sifting through and comparing responsible investment information and data.
Eric Bigelsen, senior adviser and head of the ESG Work Group at the EDM Council, says: “Standardisation and consistency are significant challenges today. Even carbon, one of the most well-known and understood ESG factors, is awash with confusion due to inconsistent definitions and calculations that exist across multiple jurisdictions.”
Lorraine Waters, chief data officer at data management company Solidatus, also highlights issues with inconsistency: “One of the most challenging things with ESG today is the lack of a universal scoring system. Many firms have enacted their own, but since there is no widely adopted system, it becomes very challenging for firms that are developing investment strategies as well as those looking to invest in green-savvy companies.”
The lack of standardisation and inconsistency is a widespread challenge, as Capocci acknowledges: “How best to report on ESG performance is a really difficult area for the industry as a whole, as the external data can be a bit patchy and sometimes doesn’t fully reflect what we believe, but it is useful as guidance. This is an area where we would like to see improvement.”
Tomaszewski also expresses concerns: “All the tools are useful in their own way, but until the assessment of and research into funds from a responsible point of view is up to the standard of regular fund research then investors will have a greater chance of investing into products that don’t align with their views.”
But unfortunately the solution is not quite here yet, as Bigelsen estimates: “We’re probably a few years away from having better, more complete and consistent data that all stakeholders in the ESG ecosystem can rely on.”