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Controversies and challenges of ESG Scoring

In June 2022, FT Advisor published an article mentioning how the United Kingdom Financial Conduct Authority (FCA) expressed its support to include ESG rating agencies under its regulatory umbrella. Nonetheless, in an other article by The SustainAbility Institute by ERM, refering to a recent ESG Global Study Report with the views of over 1'000 global investors, lack of ESG scoring consistency is the number one challenge in implementing ESG investment strategies. Therefore, financial institutions that decide to incorporate the ESG concept in their investment approach inevitably need to rely on an ESG data provider.

In that sense, Indigita is currently researching and analysing the ESG data provider market with the aim of meeting and satisfying the business needs of the financial professionals, via its portfolio of digital solutions.

Consequently, we have asked our Head of Clients Delivery & Partnerships, Nabil Hatimy, to provide us with an overview of the current ESG data provider situation.

What is the status regarding ESG data providers? Why are there so many and no single standard?

We can see many players in the market. However, as the market consolidates and investments become more significant, there is a greater need to get ESG data and ratings. Major product data providers, who were already in the market, are catching up thanks to their existing infrastructure. However, we also see newcomers that are becoming important ESG providers. Therefore, the main challenge remains. To date there is no standard or reference provider in terms of ESG ratings.

Why is it important to incorporate ESG data into the financial business?

Mainly for three reasons. Firstly, investors are becoming more and more sensitive about sustainability as in any other field. Secondly, we are progressively assisting to the implementation of political agreements, such as The Paris Agreement, by regulators to bring clarity in the financial market. Lastly, new generations of investors are not only looking at performing assets and investments, but also sustainability and ethics.

What are the main challenges of finding the appropriate ESG rating and data provider?

Financial institutions have two choices. On the one hand, they can either decide to fully rely on an ESG rating provider, implementing the ESG criteria that have been identified and decided upon by the provider. On the other hand, larger institutions may decide to select only certain ESG data points, which are needed to define their own customised ESG rating. Depending on the choice, a specific provider can be better performing or more suitable than others.

What is the vision of Indigita as far as ESG is concerned?

Indigita is at the forefront in providing solutions to its clients, including ESG ratings. Our API and inApp solutions are being further developed to include ESG data coming from the major providers in the market or directly from financial institutions. This will give us the flexibility to assist clients that want a standard or customised solution and allow us to provide an ESG rating on the basis of ISIN search.
The aim of inApp is to be enriched with data to help our clients in further increasing the suitability and appropriateness of their investment proposals. Therefore, we are continuously exploring new types of investment criteria like ESG, products under sanctions, or client-driven restrictions on investments.

ESG Data Provider Survey

Indigita’s ESG Data Provider Survey is currently ongoing and will help us to obtain relevant and accurate information that will enrich our digital solutions and offer our clients risk-free, sustainable investment proposals.

Please click on the link below to contribute to our survey.

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