What cannot be measured cannot be improved: Why BlackRock’s new standard for investing in sustainability will require a data strategy to support it.
By now you’ve heard about BlackRock CEO Larry Fink’s annual letter to corporate executives in which he addresses the need for a fundamental reshaping of finance, with climate change driving a reassessment of risk and significant reallocation of capital. Along with this, BlackRock sent a letter to clients to address how environmental, social and governance (ESG) will impact its multi-trillion-dollar investment strategy moving forward.
I applaud BlackRock and others who are shifting their focus to sustainable investment. We need not look far for evidence that we are in an environmental crisis. Bringing the conversation to the global stage with public statements and a commitment from investment leaders is important and critical for the industry. But I am more concerned about their data strategy. How will we measure if our investments are truly more sustainable?
Understanding what to measure is the first step in the process, but getting access to the data needed—operational, financial and qualitative—is extremely complex and typically done through a manual process. While standards bodies such as Task Force on Climate-related Finance Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) and GRESB have taken the lead with frameworks for how ESG is measured and indexed, this is where things break down quickly—because even the standards bodies will tell you they do not have the data tools needed today. And the older legacy technology many firms are using don’t have the horsepower to ingest and process the much-needed data to measure ESG. I can hear Greta Thunberg applauding BlackRock, but asking, “Mr. Fink, what is your data strategy and how will you execute it?”
“We need a shared culture of responsibility, urgency, and agency that drives ESG strategies and practices across the real assets industry,” said Deb Cloutier, Founder & President of RE Tech Advisors, a consulting firm that supports the greater real estate investment community and a Mercatus partner. “Data is the first and last step in that goal for any asset portfolio. Without a data strategy, it’s hard to know where to begin, and opportunities to improve both financial and ESG performance are inevitably left on the table.”
The growing importance of ESG impact reporting is undeniably re-shaping the competitive landscape for private market investors. To be successful, however, ESG monitoring has to happen at the asset level, not the fund level, to truly understand the impact, risk and performance. Those who make ESG a priority will enjoy greater investor confidence and partner prioritization. At Mercatus, we have no bias, no vested interest in the story the data tells. Our only mission is to empower customers to make smarter, data-driven decisions that will benefit not just stakeholders but this beautiful planet we call home.