Opening the black box of ESG data

The value of global asset managers applying environmental, social and governance data to drive investment decisions has more than tripled over eight years, to almost $38 trillion in 2020. This underscores the industry need for transparent, high quality ESG data. In fact, Bloomberg is now seeing that clients are relying less on third-party scores and are now focused on computing their own, further driving the demand for raw ESG data.

To meet this demand, Bloomberg provides company reported ESG data for almost 12,000 companies and over 410,000 securities in more than 100 countries with more than 15 years of historical data. Beyond this, Bloomberg offers carbon estimates, scores, analytics, indices, research and news to help banks, investors and companies better evaluate their assets under management, capital allocation, lending and report on sustainability disclosure requirements and performance.

The main challenges in sourcing ESG data are that there is a lack of disclosure and standardisation. Reporting this data isn’t mandatory, and there is no common framework for companies to disclose their ESG data, such as International Financial Reporting Standards (IFRS) and the Global Reporting Initiative (GRI). This leads to a need for resources to be spent on standardising and interpreting unstructured data, which can be sparce, incomplete and not timely, which makes this process time consuming and costly.

To address this challenge and ensure transparency, Bloomberg captures ESG data from company reports, AGM results, sustainability-related press releases, policy documents and websites and any other publicly available documents and has a team of dedicated ESG regulatory specialists to ensure that we have content that aligns with the standardisation being brought about by regulation.

Bloomberg’s global team of ESG analysts then run multi-layer quality controls to clean and standardise inconsistent company reporting to the highest standard. Bloomberg’s ESG company data represents at least 80% of company operations, to give a complete picture of a company’s environmental and social performance. This company-reported data is fully transparent, and users can drill down to read the original source documents. An example of where Bloomberg is helping to address transparency challenges is through our greenhouse gas (GHG) emissions carbon estimates. Bloomberg leverages a large database of company related data and expertise in modelling to create these estimates for companies that do not report.

ESG data challenges

Patricia TorresWe started providing ESG data to our clients over a decade ago, and today nearly 18,000 customers globally use data accessed through Bloomberg to assess climate risks, generate investment ideas and provide sustainability reporting. Our ESG data is used by investment professionals in buy- and sell-side firms, corporations and governments.

Specifically, buy-side clients are looking for ways to integrate ESG data into their investment approaches to better manage risk, identify which companies may be best positioned to succeed in a sustainable world and to meet ESG regulatory reporting requirements. Similarly, we see Bloomberg ESG data increasingly being integrated into sell-side analysis to broaden analyst insights into global sustainability risks and opportunities, and to meet regulatory reporting needs. We see financial institutions incorporating ESG data into evolving underwriting, including growing thematic debt underwriting.

The main challenges that clients face surrounding ESG data are the lack of quality data, difficulty integrating ESG into their technology stack, complying with new regulatory requirements and utilising strong and “honest” benchmarks. One example of this is different data points may be reported across companies in the same sector. Similarly, different data points could be reported by the same company from one year to the next. The lack of consistent reporting standards for ESG data presents a major barrier to the increased adoption of sustainable investing and makes it difficult for clients to meet evolving ESG regulatory reporting requirements.

We are engaging actively with industry initiatives to help solve these challenges, through the development and standardisation of non-financial disclosures via the Task Force on Climate-Related Financial Disclosures (TCFD), through membership on the Platform for Sustainable Finance and the UK’s Green Technical Advisory Group and via the development of our own ESG data and analytics offering. To continue addressing these changes, Bloomberg would like to see an increase in disclosure and transparency from companies, ESG data that is disclosed in annual reports and data that is machine readable to increase efficiency.

Regulatory initiatives and reporting requirements

One of the regulations coming out of Europe is the Sustainable Finance Disclosure Regulation (SFDR), which aims to ensure that financial market participants are able to finance growth in a sustainable manner over the long term while combating ‘greenwashing’. One of the key challenges posed by SFDR is the annual disclosure of Principle Adverse Impact (PAI) indicators, which covers ESG issues and includes a number of fields where many corporations do not currently disclose meaningful data requiring firms to have vast amounts of new ESG-linked datasets.

To help firms comply, Bloomberg maps SFDR’s PAI dataset to our ESG data, which can be used a firm’s reporting and risk management systems or through Bloomberg’s analytics tools to support portfolio reporting and monitor investment guidelines.

Another key regulation is the EU Taxonomy, a framework to classify environmentally-sustainable economic activities. Bloomberg’s data and tools support firms’ compliance needs with a solution that adheres to the five-step process outlined in the Taxonomy Report.

Regulations like SFDR and EU Taxonomy expanded disclosure and reporting requirements will usher in a need for new types of data and make ESG an increasingly essential part of the investment workflow, especially as we improve global alignment.

Driving improvements in ESG data disclosure

Brad FosterInvestors and data providers alike need to engage with companies to make it clear that their commitment to ESG is not just a “check the box” exercise, but it allows them to build long-term sustained growth and give them a competitive advantage. We’ve seen a dramatic increase in investor interest for ESG factors and considerations when making investment decisions over the past few years. As such, it’s imperative for companies to account for these metrics and properly disclose this data to demonstrate their commitment to creating meaningful change.

Bloomberg is a long-time advocate for improving the quality and usefulness of corporate sustainability disclosures. The ESG data available through the Bloomberg Terminal, and as an enterprise data feed, includes as-reported data and represents at least 80% of company operations to provide investors with a holistic picture.

For products such as the Bloomberg Gender-Equality Index (GEI), companies that properly disclose their data have the ability to showcase their company’s commitment to gender equality and transparency, improve their reporting by aligning with internationally accepted disclosure standards, and benchmark policies and performance against peers with the comprehensive GEI scorecard. Investors are then able to reference the GEI to see the data that these companies have provided in order to make investment decisions, while these companies make strides towards equality.

Offering impact for investors

Bloomberg provides an ecosystem of Sustainable Finance Solutions to create the greatest impact for investors. This includes data, scores, analytics, indices, research and news to help investors and companies better evaluate assets and report on sustainability disclosure and performance as this is a rapidly evolving area. The robust solutions enhance all approaches to ESG investing and portfolio optimisation, as well as corporate strategy and risk management

While ESG has traditionally been thought of as a “black box,” Bloomberg prioritises transparency, consistency and company disclosure. Through Bloomberg, investors can reference not only ESG scores for companies they’re interested in, but the underlying data and methodology that led to those scores. Bloomberg’s proprietary scores have two primary goals, to drive increased disclosure and to reward strong performance. Additionally, investors have access to the research by BloombergNEF (BNEF) and Bloomberg Intelligence (BI), which provide research and analysis with actionable insights from ESG data to drive idea generation, identify material ESG issues by industry and inform investment strategy decisions.

Innovation ahead

Bloomberg is constantly innovating and evolving to meet the needs of clients. As such, Bloomberg will continue to build on new data fields and scores that are available to clients as the industry continues to evolve and new trends arise.

Beyond Bloomberg’s proprietary scores and data, Bloomberg provides a variety of third-party scores and data so that companies can access a holistic picture of the market. Third-party ESG Scores include products from other leading ratings providers including MSCI, Sustainalytics, ISS and RobecoSAM. This allows investors to have a menu of data, so they have access to what’s most appropriate and useful for them.

Recently, Bloomberg began collecting and publishing publicly available US EEO-1 Reports for increased data transparency on racial and ethnic diversity of US workforces. This data is published on the Bloomberg Terminal. In addition to striving towards more disclosure around diversity (including gender and race/ethnicity), Bloomberg is continuing to innovate to increase asset level data, which is a particularly important input for climate risk, and adding more forward-looking data, such as carbon targets data.

Corporate Statements

Opening the black box of ESG data

Patricia Torres, global head of sustainable finance solutions, and Brad Foster, global head of enterprise data content at Bloomberg, outline how the firm is addressing investor needs for transparent environmental, social and governance (ESG) data and the challenges in sourcing this data

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