Asset service providers in 2023 are looking to beef up their capabilities to address the increasing interest in outsourced environmental, social and governance (ESG) data solutions by tapping digital technology and fintechs.
In an interview with The Asset, Yen Leng Ong, head of Southeast Asia at Northern Trust, says the challenge facing the institutional investors when it comes to developing their ESG capabilities is the data, given the fragmented data sets and the lack of industry consensus around standards.
"Institutional investors would define their own data sets through sourcing, aggregating, and analyzing from different service providers; knowing that different service providers may also have different interpretations of a similar data set."
To address this challenge, asset owners, investors and investment managers are using outsourced ESG solutions based on digital technology offered by asset service providers. These entities realize that with the use of digital technology to incorporate feeds from multiple data providers involving multiple types of data, ESG workflow solutions can integrate data and analysis directly into the investment process.
"Leveraging these solutions enables institutional investors to focus on their investment process and ease their burdens of data collection, interpretation and reporting on ESG data," Ong states. "We saw an increase in demand from our clients asking us to provide them with these solutions rather than them having to build the solutions themselves."
In response to these demands, asset service providers are working with fintechs to develop digital solutions that can be used for enhancing the ESG capabilities of asset owners, investors and fund managers.
For example, in November 2022, Northern Trust and Equity Data Science (EDS), a fintech that provides a platform for fundamental investing, launched an ESG workflow solution that allows investors to more quickly access and share information. The new ESG digitized data aggregation tool leverages data science to help increase transparency while enhancing efficiency and collaboration among investment teams.
"Integrating ESG into core investment practices is a key requirement for our clients," Ong notes. "In collaboration with EDS, Northern Trust offers an ESG solution that supports institutional investors' investment process using workflows and analytical tools. It provides managers the ability to integrate and refine ESG elements in their processes, and streamline their reporting on ESG data. In addition, Northern Trust's Investment Risk and Analytical Services group provides ESG-related insights solution for performance measurement and monitoring."
Like other asset service providers, Northern Trust is increasingly looking for fintech partners to support its outsourcing work, particularly in the front office, and, over the past year, has announced a long list of tech partners with expertise in areas ranging from blockchain to foreign exchange.
The firm, for example, has entered into partnerships with fintech Robotic Oversight System for forex processing, asset manager BlackRock for operations processing for mutual fund managers, and financial data firm IHS Markit for middle-office services.