In view of the increasing demand for sustainable financial products that meet the ESG criteria (environmental, social, corporate governance), the Federal Financial Supervisory Authority (BaFin) has carried out a market study. This study highlights the sources of ESG data and the availability of ESG ratings used by German asset managers.
It turns out that most information comes directly from the companies in which investments are made, based on their reporting and transparency obligations. Nevertheless, 83% of the 30 asset managers surveyed use data from external service providers. The leading providers include:
In addition, JPMorgan, Qontiqo Stox, Morningstar, Refinitiv, ClarityAI, Moody's, Trucost, S&P, Markit iBox, Vigeo Eiri, SOF Ltd, Rimes, FactSet, GRESB, Carbon4Finance, CDP and Cirium are also used by a smaller number of asset managers .
More than 70% of the companies surveyed rely on the services of more than one provider. Only in the segment of alternative investments, including real estate funds, do managers rely primarily on data collected internally.
A critical point is that 81% of asset managers find the costs for this external data to be disproportionately high. The average costs are currently around EUR 48k per year. In addition, 87% have introduced comprehensive quality controls and plausibility checks for the data, with almost two thirds (62%) rating the quality of the available data as inadequate.
A particular problem in the area of ESG ratings is the lack of comparability of information from different providers, due to different rating scales, standards and weightings of individual factors. Only around 30% of the study participants use their own rating procedure.
The EU's planned Central European Access Portal (ESAP) could contribute to improved ESG data coverage in the medium to long term. This portal is intended to serve as a public platform on which companies provide their ESG data in a standardized format. This would enable users such as capital management companies, investors or rating agencies to receive sustainability-related company data early and consistently.
In addition, the European Commission's draft regulation of ESG rating activities, which imposes transparency and governance requirements on rating providers, could address some of the issues raised in the market study. The draft aims to improve the quality and integrity of ESG ratings and ensure independence while avoiding potential conflicts of interest. However, the draft does not provide any substantive requirements for the methodology of ESG ratings, which means that asset managers could continue to be confronted with the challenge of poor comparability of ratings from different providers.
For the companies affected - in addition to asset managers, of course also banks and insurance companies - this means, in addition to all the challenges already mentioned, one thing above all: proactive participation in the development of the new regulatory standards, for example by taking part in the corresponding consultation processes, promises the greatest success in the future. Furthermore, the chosen data providers should be regularly reviewed based on ongoing experience.