News
28/10/24
ESG data risk management
Asset managers frequently use Environmental, Social and Governance (ESG) data. The availability, reliability and comparability of this data is often a challenge. How do asset managers deal with this and how do they ensure that the data used is correct and complete? The AFM conducted an explorative study. The study report contains the most important observations, that can support asset managers in establishing processes, systems and internal controls for risk management with respect to the use of ESG data.
In brief
- Asset managers have established the governance structure with regard to the management of ESG data risks in different ways.
- Many asset managers use one or more third-party data providers for the majority of their ESG data needs.
- Using an unambiguous definition of data risk supports asset managers in identifying and managing this risk.
- All asset managers have both proactive and reactive policies and control processes to ensure the quality of ESG data.
Supervising controlled and sound business operations
The AFM supervises compliance with the rules for controlled and sound business operations that apply to investment firms and investment managers of both AIFs and UCITS. This also includes the supervision of compliance with European legislation regarding the integration of sustainability risks in business processes and risk management.Availability, reliability and comparability of ESG data is a challenge
To meet these requirements, asset managers need ESG data for the identification and integration of relevant sustainability risks, the measurement of the adverse impacts of investment decisions on the (ESG) objectives of the organization and the determination of criteria around the ‘do no significant harm’ principle.Asset managers can obtain the necessary data directly from the issuer, apply or develop their own methods to calculate ESG data themselves, or purchase the data from third-party data providers. The availability, reliability, and comparability of ESG data is a challenge. As a result, the data needs of asset managers cannot be fully met, at least not in the short term.
Explorative study supports asset managers in establishing processes, systems and internal controls for risk management
Ensuring the reliability and independence of ESG data is an important precondition for the adequate management and integration of sustainability risks in business operations and investment policies. The AFM therefore conducted an explorative study into the management of risks regarding the use of ESG data. As a result, the AFM has gained insight into the way ESG data is dealt with and how the verification of the accuracy and completeness of the data is carried out. The AFM shares its observations with the market because they can support asset managers in establishing processes, systems and internal controls for ESG data risk management.Contact for this article
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