Over the last decade, environmental, social, and governance (ESG) investing has grown in popularity, with some estimating that the worldwide value of professionally managed portfolios containing important parts of ESG analysis will exceed US$ 17.5 trillion. The trend in responsible investment and ESG reporting presents investors with many challenges when it comes to gathering, maintaining and analysing ESG data.
Furthermore, the market capitalisation of ESG-related traded investment products offered to institutional and individual investors has topped US$1 trillion and is fast growing throughout financial markets. Increasing government activities in places such as Europe, Asia, and North America have had an impact on ESG investing over the years, boosting the use of investor ESG software.
Gaining access to accurate, credible and consistent ESG data and supporting information is difficult, but adopting ESG software can lighten the load for both the organisation and its investors.
So what’s in it for investors?
Risks and opportunities
To assess long-term risks and opportunities, it’s critical to track performance over time. Investors need access to current and correct data now and in the future – not just a time-stamped data set – to construct a long-term investment strategy that will support investment decisions.
Investors can examine performance data on an ongoing basis rather than at a single point in time by using a central software platform to collect and monitor ESG performance data.
By using ESG software, questionnaires can be sent directly to investors so deadlines, flags, and notifications can be configured. This allows investors to be notified immediately when it’s time to request updated information or resolve an expired document. Portfolio company scoring also assures improvements and minimum performance standards can be met every year.
Compare, benchmark and score
It is now more crucial than ever to have access to reliable and consistent ESG data in order to make informed investment decisions. There are numerous ESG frameworks and rules available for ESG reporting, but determining which ESG data is required from companies can be difficult for investors.
ESG software enables investors to customise questionnaires and data collection to ensure they are collecting the right data. They will be able to aggregate consistent, comparable, and accurate ESG performance data from across funds and portfolios using the software after it has been collected which will then help them compare, benchmark and score portfolio companies and view key information across various metrics and KPIs.
Saving time and resources
Many businesses still rely on spreadsheets and emails, which become inefficient, time-consuming, and prone to error as data becomes more complicated. Manual processes not only pose a security risk, but they are also prone to error, as well as being time and resource-intensive.
Data gathering, management, and reporting can all be automated on a wide scale using ESG software, freeing up time and resources for more important jobs. With the help of ESG software, investors can shift their attention from data collecting to in-depth reporting, analysis, and informed decision-making.
Improved response to ESG risk
Investors want to know about the ESG risks and opportunities that companies face. This includes determining the influence of ESG issues on a company’s long-term business strategy as well as the company’s ability to react to ESG developments. These factors may, in time, alter competitive advantages and, as a result, the long-term viability of business growth and shareholder value creation.
ESG software can be used to quickly detect and mitigate ESG risk. Using automated analytic tools like scorecards and performance scores, company responses can be benchmarked, assessed, and scored against pre-defined criteria. High-risks can then be quickly detected, and a plan of action can be devised.
Investors can engage directly with their portfolio companies, establish actions with deadlines, and create and follow specific KPIs using a software platform.
With the current state of the world, enterprises in both developed and developing countries are implementing investor ESG software to extract sustainable investment profiles from clients, promote sustainable and responsible growth, and limit enterprise risk in the wake of the COVID-19 pandemic.
The obvious method to simplify the ESG data gathering, questionnaire dissemination, and administration process is to use ESG software. Smart investors have seen the light and are now searching for purpose-built ESG software platforms to continuously gather, measure and analyse data and KPIs from their portfolios.