ESG Industry Challenges:  New Benchmarking Solutions

For active managers, the commercial and societal opportunities offered by ESG products are open-ended.   Unfortunately, so are the costs.

Escalating ESG costs (both external and internal) are a function of:

  • the growth of the category

  • the growing sophistication of ESG strategies (inclusion is more expensive than exclusion)

  • increasing regulatory requirements

  • initiatives that combine significant internal personnel in addition to internal and external data, particularly Stewardship

  • the consolidation of ESG data vendors

This trend is particularly evident in Europe where research budgets have declined at the same time that ESG strategies have flourished.

The Need for ESG Benchmarks

In order for ambitious long-term ESG objectives to be achieved many stakeholders will have to participate including:

  • ​Governments

  • Regulators

  • Asset Owners

  • Investment Consultants

  • Industry Organizations and Advocacy Groups (UNPRI etc.)

  • Asset Managers

While all of these stakeholders understand the benefit of achieving ESG objectives, none, including asset managers themselves, fully understand the (asset management) cost of implementing these increasing ambitious strategies.

Frost ESG/Stewardship Strategy Benchmarks

Building on the FrostDB research database, the ESG/Stewardship Strategy Benchmarks will capture:

  • Detailed external ESG input spending including Databases (by type), Proxy Advisors, Climate Data and other ESG inputs.

  • The application of these inputs across asset classes including Passive and Private Assets.

  • Detailed internal ESG spending across multiple categories including data, internal research and personnel.

  • Data related to Stewardship initiatives.

Critically, the analysis is dynamic, capturing changes in ESG spending on both a historic and forward looking perspective.

Process

  • Managers submit data

  • Managers receive their data against an AUM-adjusted series of anonymized peer universes

Outcome

   Data and analysis from the Frost ESG/Stewardship Benchmarking Database will enable managers to calibrate ESG spending and make more informed decisions related to capital allocation, product planning, design and pricing.

   It will also be useful in interactions with asset owners/consultants and other societal stakeholders.

   Related Paper:  Why MiFID II Threatens European ESG Outcomes   

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Frost Consulting Limited is a registered company in England & Wales, company number: 06921081.
Registered address: 15 St. Botolph Street, London, EC3A 7BB.