Environmental, Social, and Governance (ESG) investment has witnessed spectacular growth in recent years, and the ESG factors are poised to shape the investment industry for years to come. According to Morningstar, global inflows into sustainable funds reached an all-time high of just over $ 185 billion in the first quarter of 2021, led by Europe (close to $ 150 billion) and followed by the US.
While a wealth of ESG data is available, it is not consistently comparable and rarely verifiable. Proprietary indexes and ratings are attractive only if users know what goes into the scores and can verify the scoring components. Perhaps it is not the overall ESG rating itself that is important, but the underlying data captured, the relative weighting, and the assumptions that determine the score. Moreover, many investors are developing their own ESG scores using detailed ESG datasets provided by data vendors.
ESG Data Diversity in the Competitive Market
The ESG data and analytics market is emerging: many traditional ratings data providers and startups are working diligently to establish their respective approaches. At idaciti, we believe it's vital that the data sets we offer are transparent and traceable. More importantly, the bespoke data sets our customers can automatically structure using our platform "as a service" has the same transparency built in, allowing end-users of the data to verify where the data was sourced from.
The diverse data and AI/ML models deployed could be advantageous for asset managers. It would allow them to use multiple data sets and technology platforms to triangulate and develop their proprietary approach based on their firm's ESG investment strategies. The flexibility of the idaciti platform allows our customers to differentiate themselves from the rest of their competitors.
Identical Digital Reporting Standard for Financial and ESG Data is the Ultimate Goal
iXBRL (see an example here) is the globally adopted digital reporting language. Many public companies worldwide have filed their financial reports in iXBRL (or XBRL) format, some for over a decade.
Both the US and EU have made significant commitments to mandate climate disclosures. In the US, SEC has proposed long-awaited climate change disclosure rules that would require public companies to disclose extensive climate-related information in their SEC filings tagged in iXBRL format.
With our strong history in developing iXBRL/XBRL-based solutions, we are excited and anxiously waiting for the day when ESG data are tagged in iXBRL.
But, how about the here and now? Can we structure a significant portion of the anticipated ESG data with traceability in the same way the iXBRL format can provide?
idaciti's iXBRL-First and AI/ML-Assisted Approach Provides Full Traceability
No matter how good a data provider does with its human or AI/ML-based solution to collect or structure data, providing full traceability is the only way to ensure downstream confidence. Users need to answer the question quickly, "Where does that data come from?" to verify the credibility of the data.
idaciti's innovative approach is different from the traditional ESG data vendors. Our XBRL-first principle would append valuable metadata to the source documents, so we can always provide full traceability for the data structured by the ML models. Let's take a look at a couple of examples.
Example #1: Number of Employees - typically reported in the Business Overview Section in 10-K Filings or CSR Reports.
idaciti shows TRACEBACK to the source document/location for all data points. In this case, for "Number of Employees". The company has reported a detailed breakdown by gender and race. idaciti has structured the granular employee distribution data, and clicking on any data points will show the traceback to the Business Overview section in the 10-K filing.
Example #2: GHG Emissions (Scope 1, 2, and 3) - typically reported in the CSR Reports or Annual Reports.
In this case, for "GHG Emissions Scope 1, 2, and 3". idaciti has structured the data from the company's published PDF-based CSR reports. Like the previous example, clicking on any data points will show the traceback to the source document.
Upon close examination, the traceback for the 2020 Scope 2 Market-Based Emissions is from the 2021 CSR report, and this indicates the number has been "restated" by the company.
The idaciti platform captures both the original reported and the restated numbers, and both values can be traced back to the source reports and the exact locations.
We Focus on Providing Traceable Data - Our Customers Focus on Taking Action
More than ever, we hear from ESG market participants that they do not think they can depend solely on the few leading ESG ratings and data vendors to provide the critical data they need for their businesses. The need for reliable traceability is one of the key reasons organizations are looking for alternative ways to source additional ESG data that they can verify and incorporate into their unique ESG analyses and investment strategies. Suppose you want to differentiate your organization from your peers and stay ahead of the competition. In that case, idaciti can help accelerate your ESG journey and get you up and running in short order.
