How BNY Mellon is looking to fix ESG’s ‘data problem’ and turbocharge the market’s record flows (BK)
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- BNY Mellon has rolled out a sustainable-investing tool, a move that highlights big investors’ growing demand for ESG strategies — and transparency into what qualifies investments as sustainable at all.
- The app is meant to help clients look for securities that match their values and make investment decisions, like buying stock in a company that aims to reduce pollution, or selling one that contributes to it.
- Clients’ confusion around differing sustainability standards and benchmarks was part of the reason the firm created the platform, senior BNY Mellon leaders said in an exclusive interview with Insider.
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There is a perennial problem that has plagued investors big and small looking to park their money in investments that reflect their values: a confusing lack of consistency. One measure dubs a company a sustainable investment because it has a diverse board, but another says that because it contributes to air pollution, it should not be recognized as such.
As inflows into products governed by ESG — environmental, social, and corporate governance — standards hover near all-time highs with trillions of dollars on the line, a new tool that custody banking giant BNY Mellon has rolled out is trying to address investors’ concerns as well as help asset managers build portfolios and conduct due diligence.
“Clients were saying that they were confused, especially asset owners, by the fact that different vendors of data came up with very different conclusions on the same investment, whether is it sustainable or not,” said Corinne Neale, the firm’s global head of business applications for BNY Mellon’s data and analytics solutions business, in a recent exclusive interview with Insider, referring to professional investors.
That feedback around what defines “sustainable” roughly a year ago prompted Neale and Roman Regelman, chief executive of asset servicing and head of digital, to take a closer look at what the firm is doing to help clients analyze securities with an ESG lens. BNY Mellon’s application, in the form of a series of dashboards an investor can view on a screen, covers some 2.4 million securities including mutual funds and ETFs.
The firm is also giving clients a line of vision into how the wider industry is investing. Along with helping investors scan for securities that reflect their values based on criteria they choose — from companies that prioritize clean water and sanitation or affordable and clean energy to those not involved with child labor in their supply chains, to name some selections — the tool has a feature that can give some visibility into certain strategies’ popularity.
Part of their thinking behind the app is that if they can provide transparency around what is and is not a sustainable investment, more investors would likely contribute to the market.
“People have been talking about ESG for a long time. But now is the time. Things are changing,” Regelman said.
“I think the reason it’s so critical is because it’s not just a buzzword. It’s really a data problem. And frankly, that’s why we have ESG as part of our data analytics. Because it’s not just a good thing to do, which it is, of course. It’s a data problem,” he said.
That the world’s largest custodian — with some $39 trillion in assets in its care, and $2 trillion in directly managed assets as of Sept. 30 — has created a tool to help investors define sustainability highlights growing demand for transparency in the now-ubiquitous ESG market.
The term itself has been controversial in asset and wealth management circles because nobody agrees upon the very same definition of a do-good investment; and a lack of uniformity has given way to the act of so-called “greenwashing,” or marketing a product as sustainable or environmentally friendly when it is not.
BNY Mellon soft-launched the app last July, and it is now widely available to any professional investor, including asset managers, financial advisors, banks, and corporate treasurers. The firm is selling the app under a subscription fee model, but declined to specify the cost, and it has been provided to 40 institutions representing some 200 users.
The firm also declined to specify which firms are using the tool so far, citing privacy agreements.
How the new administration could shape ESG investing
The tool itself is part of a wider growth story. RBC Capital Markets analyst Sara Mahaffy and Lori Calvasina, head of US equity strategy, said in a Wednesday report that the global sustainable investments market across asset classes was $31 trillion, citing the latest Global Sustainable Investment Alliance data as of 2018. That was up from $23 trillion at the start of 2016.
Firms are adding new ESG-governed products, creating ESG-focused leadership roles to help wrangle expected growth in the space, and the incoming administration under President-elect Joe Biden will likely look to address the lack of standardization in ESG reporting standards and scoring.
“Greenwashing is likely to grow increasingly problematic as companies and funds viewed as ESG-friendly continue to attract assets at an accelerating pace. If not curtailed, the proliferation of greenwashing may cause investors to question the bona fides of the ESG sector as a whole,” Securities and Exchange Commission Investor Advocate Rick Fleming wrote in a December report taking stock of the commission’s actions last year.
Fleming said the SEC had “failed to establish a coherent framework for the disclosure of environmental, social, and governance (ESG) matters that could influence a company’s long-term performance.”
Former SEC Chairman Jay Clayton, who stepped down at the end of 2020, has said the matter is important to the SEC. Biden is now expected to tap Gary Gensler, former chairman of the Commodity Futures Trading Commission from 2009 to 2014, according to a Tuesday report from Reuters.
Biden has also tapped at least one leader with direct experience in the space. Brian Deese, BlackRock’s global head of sustainable investing, was named head of the National Economic Council. Before joining the asset manager, Deese worked in the Obama administration and helped negotiate the Paris Climate Agreement from which Trump withdrew US membership.
Biden said last month that the US will rejoin the agreement on “day one of my presidency,” according to an Associated Press report of his remarks to a virtual gathering of world leaders.
As a result of the US expected to rejoin, BNY Mellon’s Neale, a former leader at BlackRock, said she expects “many more asset owners will be looking into sustainability topics and issues.”
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