Data, Digital Assets and Decentralized Impact

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That question is essential to answer, since MSCI dominates the ESG ratings market, with Bloomberg Intelligence estimating that 60% of all the money global retail investors have directed towards sustainability and ESG has gone to funds whose status is based entirely on MSCI’s ratings. But the problem isn’t limited to MSCI: Each ESG ratings provider uses its own proprietary system and data sources to determine its ratings, most of which lack transparency and rely on self-reported data from the companies they rate. So it’s difficult to have much confidence that their ratings reflect real impact.



The ESG Data Gap
Although regulations are emerging that mandate greater transparency, such as the E.U.’s Sustainable Finance Disclosure Regulation (SFDR), and the U.S. SEC’s climate disclosure rules, expecting companies to self-report the impact of their operations just isn’t enough anymore – and the lack of reliable impact data is complicating these regulatory efforts.

As Capital Monitor reported in February, around eight in 10 funds designated by the SFDR as “sustainable” are invested in fossil fuel companies, and “a major issue is that much of the data to support SFDR classifications isn’t available yet.” Meanwhile, according to Kristian Håkansson, head of product and marketing at Swedish fund house SPP, “The articles [of the SFDR] are so wide in their definitions that managers can take any social or environmental characteristics, no matter how minimal, and market cambodia whatsapp number data their fund as sustainable.”

Similarly, in July 2021, the International Finance Law Review published an article that highlighted the challenges facing asset managers when it comes to the SFDR and its accompanying regulatory technical standards (RTS). A significant takeaway is that “…the SFDR RTS require that the principal adverse impact datasets must be sourced at the investee company level and therein lies the next challenge for asset managers. Most companies are not prepared for this and will not be in a position to provide asset managers with the data needed … Compounding this is also a lack of comparable, reliable and publicly available data.”

The problem with impact reporting is that data usually comes from companies’ ESG analysts, and is prepared by teams of individuals who were not actually engaged in creating the outcomes they are documenting. For investors to gain an accurate picture of whether a company is achieving positive outcomes for people and the planet, those who are involved with delivering on its impact strategy – including on-the-ground employees, customers, suppliers and community members – need to provide data on the actions the company is taking.

To ensure that ESG and impact data reflects real-world progress, an integrated mechanism is necessary that simultaneously tracks commitments, capital allocation and data origin, while incentivizing stakeholders to participate. For ESG to evolve in this direction, incentive structures must be designed to lead people to make unbiased, accurate assessments about the positive outcomes they’re involved in creating.