According to a recent global survey of institutional investors and intermediary distributors conducted by BNP Paribas Asset Management and BNP Paribas Corporate & Institutional Banking, the ‘2023 BNP Paribas Thematics Barometer’, 70% of thematic investors plan to increase thematic investing over the next three years. Through thematic investment, investors aim for positive sustainability impact (70%) and the opportunity to enhance investment returns (63%), with 84% expecting a positive impact on long-term performance of thematic investing.
The lack of data standardisation across markets, insufficient availability of quantitative data, and inadequate consistency on ratings and rating methods by providers, are the biggest challenges to ESG investing.
Here are four ways technology can help solve the challenges along the ESG data value chain.
More granular data sourcing and ESG data verification with tokenisation
Sometimes ESG projects can be smaller scale due to local initiatives and there are a variety of physical assets. In this context, sourcing reliable and comparable data is often a challenge. The two main sources of information are from company reports and specialised third-party ESG ratings agencies. However, investors need greater access to more granular datasets, at company and/or asset level.
By using tokenisation – the process of representing real-world assets or data as digital tokens on a blockchain – investors can track the origin of the ESG data and verify its authenticity across the whole value chain, facilitating data collection, particularly for smaller projects. As a financial instrument, tokens can encapsulate value and data on a blockchain and can be passed on or traded almost instantly in an efficient and traceable manner.
The example of the tokenisation of a renewable project bond issued on Ethereum blockchain in July 2022 by EDF ENR in partnership with BNP Paribas is a good illustration of how it could work. Both the term sheet and the ESG data set were embedded in the digital token allowing for greater transparency and ability to verify data a posteriori and throughout the value chain.
Once collected, data needs to be enriched to be exploited and compared.
Integrating Artificial Intelligence (AI) to draw operational conclusions from sourced data
When assessing the cost of risk, the main barrier is the lack of reliable and accessible data. To address this gap, companies can use shared and open source data. Open Source Climate (OS-Climate) provides open source data and software tools to meet the financial sectors’ urgent demand for transparent, consistent and interoperable climate-relevant data. This data can be linked and integrated into a project data set, where it can help assess the project’s ESG impact.
To support the work of OS-Climate, BNP Paribas has been involved in three main streams:
- The “Physical Risk and Resilience” stream, which aims to anticipate extreme climate hazards impacting its clients;
- The “NLP” stream, aiming to retrieve KPIs (e.g. Greenhouse gas emissions (GHG) emissions, GHG targets) from company reports; and
- The “Entity Matching” stream, aimed at matching multiple datasets, and leveraging on various referential data.
ESG data distributed in a structured and efficient way through dedicated platforms
The data, sourced, retreated and contextualised needs to be available to investors in a structured way to be part of the investment decision-making process.
ESG data platforms can help investors address these challenges, while connecting them with a wider range of ESG data providers.
One such platform is Manaos, a fintech fully-owned by BNP Paribas, which empowers investors to seamlessly improve portfolio data quality, connect portfolio data to multiple ESG providers and produce Sustainable Finance Disclosure Regulation (SFDR) and custom reports to meet regulatory requirements in an optimised and efficient manner.
Its value proposition is threefold.
First, Manaos provides investors with an exchange platform for seamless fund inventory collection and dissemination. This provides investors with a look-through on their portfolios, a pre-requisite for proper standardisation of investment data, viable portfolio impact assessment and sound reputational risk management.
Manaos also offers a marketplace, connecting investors’ portfolios to a range of 15+ leading ESG data providers (MSCI, Sustainalytics, ISS ESG, and more), and leveraging a wealth of ESG data points. The platform provides two free applications: a portfolio coverage-estimation application, and a data extraction application, enabling investors to retrieve cross-provider data via API (Application Programming Interface), SFTP (Secure File Transfer Protocol) and Microsoft Excel.
Finally, to help investors meet SFDR requirements, Manaos provides tools for principal adverse impact (PAI) statement generation, Taxonomy alignment calculations, and the production of an European ESG Template (EET) by customising investor’s choice of data providers among a dozen available on the platform. Manaos offers bespoke reporting capabilities for LEC’s Article 29, Task Force on Climate-related Financial Disclosures (TCFD) and other fully customised demands.
Once investors have assessed the ESG impact of their investments, they are empowered to act on it.
Digitising proxy voting
Institutional investors face challenges in accessing timely and comprehensive ESG datasets when voting on ESG proposals. Due to the manual intensity of shareholder voting processes, proxy voting is the primary mean by which shareholders can exert influence and stewardship over their investee companies. Voting on digital proxy platforms, these technologies can be leveraged for near instant dissemination of information and voting intention.
An example of a new generation technology solution is the proxy voting and investor communication platform Proxymity, in which BNP Paribas Securities Services has a strategic investment.
The platform promotes enhanced ESG proxy voting by improving communication between issuers and investors, making all participants more efficient and responsive.
The solution allows meeting announcements and agendas to be published directly from issuers to investors. Investors receive near real-time ballots and instant delivery of votes, which gives them more time to research, contribute and vote on ESG proposals. In addition, digital proxy voting removes the necessity of travelling to meetings and reduces the need for paper statements, reducing companies’ carbon footprint.