So said Erik Eliasson, head of sustainable investment at Danske Invest, referring to the environmental, social and governance criteria used by fund firms to ensure that investments are sustainable and responsible. He was speaking during Luxflag’s Sustainable Investment Week, which started on Monday.
Eliasson’s presentation tackled the reams of raw data available to asset management firms and how his company has created an internal platform to capture and take advantage of the massive flow of figures and information.
Eliasson said his team of 16 feeds an internal ESG data platform that provides portfolio managers with 8,000 ESG indicators covering 800 ESG topics. That may seem like too large a number, but Dankse “needs to have a strong and wide data platform in order to be able to cater to the needs of all portfolio managers,” he stated. For example, managers running a Swedish equities fund and a high yield bond fund “have different types of data needs,” Eliasson said on 12 October.
Fragmented data sources
There are “thousands” of ESG data providers for asset managers, according to Eliasson, and the “landscape is definitely very fragmented”. He gets contacted with a new sales pitch nearly every day.
Two years ago, when Danske had three ESG data providers, it started the process for its new ESG platform. His team evaluated 221 sources, narrowed the list down to 115 potential providers, then shortlisted 25 outfits and recommended the final 16 that Danske currently uses.
However, Eliasson expects they will add more providers in the coming years. One reason is that there are “more niche and more specialised providers” which can provide “a lot of value” in their respective areas. That could be, for instance, a firm with strong sources in gender equality or in waste management, he said. Similarly, there are a number of non-commercial data providers with “a lot of really interesting data”, he said.
Another reason for diverse sources is that the “correlation between different data providers is quite weak”. In other words, one outfit could rank a particular company highly, while another could give it a low score. It is not always apparent why. So Danske tries to evaluate the different strengths and weaknesses of each provider and integrate these into its own process, he said. In addition, Danske does not want to become overly reliant on certain providers and their specific methodologies either, but rather should be able to form its own picture, he said.
Finally, different “noise” can indicate different “signals”. In other words, portfolio managers need several streams of data in order to create the right filters that lead to the right conclusions.
Data for decisions
What exactly is this information stream used for? Eliasson said some data is needed for disclosure (to comply with coming European rules) or to measure risk in a portfolio. Other data can be used “for creating alpha” (relative investment performance) or for “our active ownership work” (pressuring executives at companies they’ve invested in to improve their ESG performance).
Indeed, Eliasson stressed the need for a “bottom-up approach.... our portfolio managers are the ones should be responsible and accountable for ESG integration.” The ESG team should not be the ones looking at ESG data or creating ESG screens for others in the company to use. His team is there to provide tools for portfolio managers and strategists to act on.
Danske Invest is part of the wealth management unit of Danske Bank, one of the Nordic region’s largest banks. The unit had roughly €124m in assets under management, according to its 2019 annual report. The company’s Linkedin page lists 77 employees in Luxembourg.
Luxflag conference
Eliasson’s was the first presentation at this year’s Sustainable Investment Week conference, organised by Luxflag, an outfit that checks asset managers’ sustainable and responsible investment claims. In introductory remarks, Sachin S Vankalas, Luxflag’s general manager, said 350 people had signed up for Eliasson’s talk. Denise Voss, Luxflag’s chair, said that altogether 800 attendees had registered for the week-long confab.
The conference continues online until Friday.