FCA Targets ESG Data Providers

The need for Wealth Management firms to align with Sustainable Finance Disclosure Regulation (SFDR) has led to an increasing demand for ESG and carbon data.  This in turn has produced an increase in the cost for such data.  A recent report by Substantive Research found investment firms are increasing their budgets for ESG data as they seek further detail on company disclosures, ESG integration and ratings agencies.  The data shows that spending on ESG data is on the rise with an annual growth rate of 20% and forecast to approach $1bn by the end of 2021.

The research also identified several new trends circulating in the ESG data marketplace.

• The number of start-ups (ESG data providers that have existed for less than five years) make up ⅓ of the market supply with many investors looking outside ‘household names’ within the industry.
• Around ¼ of the marketplace is considered mid-level (in existence for 6 to 10 years) and established firms (established for over 10 years) another ⅓ of the market share.
• Just over ½ of providers offer a generalist approach, providing data on the E, S and G sides, while ⅓ specialise in just one aspect only.
• In terms of methodology, 70% of the providers have developed their own bespoke ESG frameworks but reflect on one or more of 20 other global sustainable reporting standards in their design.

Additionally, the FCA 2021/22 Business Plan has published its commitments to improving ESG across the industry, this will involve “promoting integrity” across the market, including ESG ratings and data providers.  The plan announced that they would consult on new disclosure rules in line with Task Force on Climate-related Financial Disclosures (TCFD) guidance for asset managers, life insurers and FCA-regulated pension schemes.  It is proposing to bring in new rules on climate-related disclosures for listed companies linked to the TCFD from 1 January 2022.  The business plans also announced that the FCA would focus on addressing greenwashing concerns as a priority.

With this business plan, the FCA has signalled its intention to adopt a more assertive and interventionist role in financial services markets, with improving the quality and quantity of ESG data a priority.  Our new ETHiX tool could play a key role in helping wealth managers avoid greenwashing and convey ESG analysis of portfolios to their customers.