A fascinating article came in yesterday about a new study on ESG data providers that evaluated more than 300 vendors. Points I picked up on are:
– 39% of the global ESG data providers are 1-5 years old, 24% are between 6-10 years old, with 37% having started more than 10 years ago
– 53% are generalists, providing data on environmental, social and governance factors
– 33% specialize in either E, S or G
– Of the specialists, only 5% are targeted towards social data, with 70% specializing in environmental and 25% in governance.
– 70% of the data vendors have developed their own framework in combination with one or more of 20 other global sustainable reporting standards. The study doesn’t explain what is means by “their own framework” or how consistent/inconsistent they may be with established reporting standards.
The authors predict that buy-side firms will continue to develop and rely on their own internal ESG evaluation frameworks and demand for specialized data on individual E, S and G components will grow accordingly. If that happens, there will be a major gap between what data buyers want and what vendors have, and we will probably see a mini-boom in S data gathering and processing.
However, in a LinkedIn post response, Bonnie-Lyn de Bartok, founder and CEO of The Social Factor Data Company (“The S Factor Co.”) which claims to offer the “deepest set of structured social impact data currently available on the market” posed an interesting question:
Is this true? Or is it that folks don’t understand complex data sets and or what constitutes social data. Everything you need is available open source. Everything. The expertise to structure “en mass” is the weakness…
She has a point about what constitutes social data. Not only is there no consensus on what a “social issue” is, but the line is sometimes blurred between social and the other two topics (environmental and governance). For example:
- climate change is predicted to have an outsized impact on low income, underserved, indigenous and minority communities, calling into question whether the matter is an environmental issue or a social one
- environmental justice policies and lawsuits are at the intersection of E and S, so into what bucket should that be placed?
- diversity, equity & inclusion (DEI) and pay equity are both concepts that straddle S and G categories
Some say it doesn’t matter because we should consider ESG holistically and recognize risks/opportunities in interplay between the three components. Others argue there are valid reasons to split the trident.
What This Means
In my opinion the notable lack of clarity concerning S indeed creates confusion about both the topic and its data. Data relevance and availability should resolve after “social issues” are better defined in a consensus manner. However, that may take time and require regulation or at least a standard to emerge as “the” one.
In the meantime, this is yet another toy to put in the “keep an eye on” toy box.
You may also want to take a step back to consider ESG topics your company has identified. Break each topic into two separate dimensions – cause (or origin) and effect (or impact) and assign an ESG category to each dimension separately. For example, climate change could have an environmental cause with a social impact. Doing so can help with categorization if that is necessary in responding to surveys, questionnaires or possibly in reporting.
You might find new opportunities by going one step further and asking for each dimension – what can we do about this as a business? Are there business opportunities for us to improve the cause/effect for the company or the cause/effect on others?