At the last minute, I decided to take this past week off. I didn’t do anything special; I just needed to disconnect. Fortunately for you, that means that I won’t ramble quite as much as normal. I also give my first album review since I was working at the finest college newspaper in the country, Plattsburgh State’s own Cardinal Points. So you have that to look forward to…lucky you.

The Problem with ESG

Over the last five years, environmental, social, and governance (ESG) data has dominated the headlines. ESG is taking on greater importance during the coronavirus pandemic, and some major asset managers believe that ESG is far more than a fad. Additionally, as natural language processing (NLP) and machine learning techniques become democratized, buy-side firms are increasingly trying to incorporate ESG raw data into their investment plays. Also, regulators (especially in Europe) are looking to require a lot more ESG-related disclosures. (This will create headaches for asset managers.) To top it off, investors are beginning to realize the tortured relationship between business and the environment, making data pertaining to climate change more of a necessity, than a luxury or whimsy.

As you can see, the headlines are as varied as the ESG space, itself. And that’s part of the problem: the term ESG is so expansive, it loses all its meaning. ESG runs the gamut, from women in senior management positions to oil spills to employee safety to carbon emissions to political contributions to human trafficking. There’s no question that these are each important factors on their own, and the proper mix of factors can yield unique alpha-generating opportunities, but given too many factors, and one can be tricked into seeing a bright and shiny signal that turns out to be a mirage.

At some point, doesn’t this all seem a little bit silly? When does this become a glorified marketing tool, both for the data providers and ratings agencies to market a new product offering that will yield alpha (you know…as long as the user does a good job of mixing and matching these datasets), as well as for investment firms looking to convince investors that their version of green will produce greenbacks? Sometimes when reading about ESG, I can’t help but think about infamous con man George C. Parker, who is said to have falsely sold the Brooklyn Bridge twice a week for several years. I imagine—that is, if Parker were alive today and also happened to be a data guy—he’d be famous for saying something like this: “I’m all out of bridges, but I’ve got the perfect dataset to sell you!”

This week, Josephine Gallagher spoke with Lazard Asset Management about how it is refining its ESG mapping tool. Now Lazard is actually one of the savvier firms when it comes to incorporating ESG into the investment process. They seem to have put thorough time and effort into building out its correlation capabilities.

“Our biggest lesson was that materiality is highly contextual. ESG issues that are material to one company can vary quite widely from another company, because of the sector or industry it’s in, the region it’s in, or something entirely idiosyncratic. It underscores the need for us to stay focused on embedding ESG at the bottom-up, fundamental analysis level,” Nikita Singhal, co-head of sustainable investing and ESG at Lazard, told Jo.

Again, it’s worth reading the article because it underscores the challenge and attention required to understand ESG correlations. But one thing that jumped out to me is that one analyst at Lazard told Jo that they also include cyber attacks into their ESG framework. The analyst said that cyber breaches have a direct effect on a company’s financial statement, as the company not only has to resolve issues arising directly from the attack, but it also must keep upgrading its technology stack and data security going forward.

I’m certainly not disagreeing with that sentiment. My issue is cyber being used as an ESG factor. As I learned from this Forbes article, cyber falls under the governance silo. So cyber is not only an op risk topic but an ESG topic? Maybe I’m overthinking this, but how can investors really understand the effects of ESG issues on their portfolios if it takes some real alchemy to find actionable insights?

I truly think that a company is going to emerge in the near future that figures out a unique way to decouple the E, the S, and the G, and figure out a more transparent way to market this datasets.

More ESG

Also this week, HSBC’s securities services arm launched a portfolio reporting service that aims to provide asset managers and asset owner clients with independent measurement (MSCI, Sustainalytics, and Vigeo Eiris) of ESG performance and carbon footprints of their large holdings.

“Clients can choose between the three providers and can then see, based on that research, the scores and ratings of which assets are highly or poorly regarded. So essentially, it’s a summary report that lets asset owners know where they can challenge their fund manager. Or, if they are a fund manager, they can check against their own research, and produce some comparisons to see which companies are rated highly or poorly,” Chris Johnson, director of market data for securities services at HSBC, told Jo Wright.

Again, though, I think my point stands: If ESG means a million different things, then can’t you—and won’t you—find whatever you’re looking to find in an ESG report, and justify away what you’re not? Am I off base? Let me know: anthony.malakian@infopro-digital.com

The Market Data Scene

NICE Actimize has fortified the datasets available for use in its Surveil-X trade surveillance tool, using exchange prices and other data from Swiss vendor SIX, delivered via Xignite’s new suite of microservices for content distribution and data management. The data includes all the market and reference data available via SIX’s MDF and VDF feeds. Xignite connects to SIX’s data in a co-location facility, where it deploys feed handlers to process the feeds, then sends the data to its ticker plant in Amazon Web Services’ cloud. This offering plays into Xignite’s larger microservices push.

“When we started talking to NICE, they told us that they wanted to migrate to a cloud solution, and they wanted data from more than 170 markets, whereas we had around 50,” Xignite CEO Stephane Dubois told Max Bowie. “So we recommended they use our technology, and use SIX as a potential source. SIX has been a long-term provider of data to us, so we already have lots of interfaces to their feeds and data.”

As end-users need new ways for data to be packaged and delivered as they rely more on the cloud, it would seem that Xignite—through its suite of microservices—is carving out a roll for itself to help established firms create flexible new cloud-connected data feeds. While the likes of Refinitiv and Bloomberg are investing significantly to port their platforms to the cloud, Xignite will look to help other firms with hefty data feeds—but don’t have cloud expertise—make that move.

As we’ve said previously, cloud isn’t the future…it’s the now.

TayTay’s Magnificent New Album

This has absolutely nothing to do with technology, but I would argue that Taylor Swift’s latest album, “Folklore”, was released at the perfect time. Its low-key, airy, nostalgic mood fits perfectly for the locked-down environment we’re currently navigating as a society. Maybe this is just me, but a pop-y, upbeat, dance-party release would not have landed as well simply because people aren’t able to go out and dance. I can feel this album in my bones. Excuse me while I go and have all the feels. See you next Sunday.