Public sources, a potential insufficiently exploited by financial players

To illustrate our analysis, we had the opportunity to interview Katrin Ganswindt, Campaign Manager at Urgewald and Freya Bannochie, Lead at Forest IQ.

In a context of ever-increasing regulatory pressure to ensure the viability of the data that financial companies use, the issues surrounding this data are many and significant: identification, availability, reliability, acculturation, cost, etc.

Financial companies have 3 ways of accessing ESG data:

• Private suppliers;
• Public sources;
• Data collected internally, often by ESG analysis teams.

Public data sources offer datasets that can be consulted and used by anyone, free of charge (or almost...).

How can you integrate these data into your ESG processes?

The genesis of public data: research to address sustainability issues

Public data is the result of work carried out by non-governmental organizations, associations, public institutions or non-profit companies, with a focus on specific research topics.

This is the case, for example, of Urgewald, an NGO which, thanks to its in-depth knowledge of fossil fuels, publishes exclusion lists entitled Global Coal Exit List & Global Oil & Gas Exit List, and Forest IQ, a data platform set up by a partnership of of non profit organizations that, according to Freya Bannochie, "provides financial institutions with usable data to enable them to combat deforestation".

In addition, financial companies publish some of their ESG data, often for the sake of transparency. Other players in the marketplace, of which resources may be more limited, can capitalize on these publications to build their own sustainability strategy.

For example, some asset management companies, such as Robeco and Trecento Asset Management, publish their watchlists as an appendix to their Exclusion Policy. These watchlists are then used by other players struggling to find solutions for identifying issuers to exclude from their investments for ESG reasons.

Why use these public data sources?

In the ESG data rush, public data sources stand out with multiple advantages:

• Transparency and independence: the European Commission recently proposed a regulation on ESG rating providers to mitigate the lack of transparency and prevent potential conflicts of interest. In the light of these future regulatory developments, public data are in a strong position. Indeed, public sources generally provide a direct access to their methodologies (usually in the form of a report available on their websites), whereas private data providers are usually wary of disclosing their collection and evaluation methods. Katrin Ganswindt demonstrates the transparent nature of Urgewald's methodology by declaring: "We always disclose the complete sources of our research, on every data point". Moreover, public sources confer a form of sovereignty over their data and methodologies compared to private sources. In addition, some private data providers also offer consultancy services to the issuers they rate, and are thus exposed to the risk of conflicts of interest.
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• Accessibility and free access: public data sources stand out for their accessibility. Subscribing to the offerings of private data providers is costly, and weighs heavily on the ESG budgets of players who consequently have difficulty finding resources to ensure the proper use of this data in their investment processes. Nevertheless, the search for coherent, fit-for-purpose public data, as well as its exploitation, can prove laborious.
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• Scope and granularity: no data set, either in terms of methodology or coverage level, is perfect today. It is therefore highly recommended to cross-reference different sources of private and public data, in order to guarantee a minimum level of bias and a high level of coverage. In particular, the use of public data makes it possible to challenge private datasets and thus ensure their consistency. Forest IQ, with 3 metrics (exposure, financial materiality and performance), makes it possible for financial institutions to compare over 2,000 companies accross comparabale indicators present for every company in the database. For example, for a portfolio invested in both private and sovereign issuers, only the private issuers are covered by the private data provider. To improve the coverage rate for ESG ratings, it is possible to use a public source such as the SDG Index. Developed by the Sustainable Development Solutions Network, the SDG Index provides 100 indicators per country, linked to the areas of progress outlined by the 17 Sustainable Development Goals.

Freya Bannochie, Lead at Forest IQ:

"Data on deforestation is better than ever before, meaning that financial players have no excuse when it comes to action on climate and deforestation."

However, the Achilles heel of public data sources lies in their coverage levels. The list of issuers covered is often made up of listed issuers, and remains limited and non-evolving. For example, the World Benchmarking Alliance (or WBA) notes a fixed sample of issuers, focusing on the most influential companies, and expresses the wish not to extend this list. In addition, public data sources may be limited to a restricted geographical area. At the same time, some public data sets are not regularly updated. It is possible to have a single data point with no historical record. Freya Bannochie invokes the very concept of sustainability, pledging: "we need to ensure a long life for the tool". Data frozen in this way can be unusable because it is not revised, and it is impossible to measure data trajectories, unlike data supplied by private companies, which offer a frequency of data updates. Katrin Ganswindt underlines the importance of updating data: "The 2017 exclusion list was very innovative, but it no longer corresponds to our current standards" . Finally, like private data providers, public sources are based on declarative data from issuers and are therefore subject to bias. Katrin Ganswindt notes that "our research is as good as the quality of issuers' reporting."

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How can you integrate public data into your investment processes?

While the advantages of public data are multiple, challenges remain, particularly in terms of formatting them and making them usable by investment teams:

• Identifying public data sources: there are many different sources of public data. Each source has its own specific characteristics (geographical area, frequency, objectives, units of measurement, etc.). Today, this information is not centralized. Financial players may therefore find difficult to navigate between the various opportunities and identify the sources they could exploit.
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• Collecting the data: public sources are often easily accessible via a dataset that can be downloaded directly from the websites of public institutions or associations. Some sources, however, require the creation of an account and/or the filling of various information. In addition, for a few sources, the dataset cannot be downloaded or implemented directly due to their format (CSV or XLSX format can be processed easily). Data usage rights imply a variety of communication formats. Open access or open source data includes a free use license and is therefore more standardized and usable.
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• Processing data: the usability of public data remains uncertain due to its format. In such cases, data collection and processing can be difficult. Methodological and technical expertise is therefore required to understand datasets (range, unit, geographical area, granularity) and adjust their format in order to integrate them into investment management processes. Furthermore, the public datasets do not include the identification codes of the entities/sovereigns analyzed. In that case, data points need to be matched directly by asset managers.

What future for public sources?

In views of all these advantages, public data sources are expanding and integrating the composite ESG data market. However, unlike private data providers that have sufficient resources to collect large volumes of data, Freya Bannochie points out that "it's important that we can support enquiries from all types of users on our open data."

This raises the question of their evolution in the financial sphere: Katrin Ganswindt asserts that "the development of public data sources is not slowing down, these sources are not going to play a smaller role on the data scene" , while Freya Bannochie imagines a scenario where "public and private data sources may flourish, but the data market will remain complex".

Katrin Ganswindt, Campaign Manager at Urgewald:

The development of public data sources is not slowing down, these sources are not going to play a smaller role on the data scene.

WeeFin as a data specialist

Our ESG Connect data aggregation platform integrates all sources of ESG data, including public data (updated automatically when a new dataset becomes available), thanks to a matching algorithm that guarantees a high coverage rate. Checks are performed directly in the platform, enabling financial institutions to exploit public data simply and with complete confidence.

In addition, the Expertise Hub module provides a mapping of public data sources. This is updated through a continuous monitoring. In addition to the collection of sources, a methodo-functional analysis is carried out to assess suppliers' methodology, coverage rates, source usability and possible uses of the data.

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