Why you need an EBOR for ESG investing

Navigating a complex Environmental, Social and Governance (ESG) landscape

Author

Carl Balslev Clausen
Group Product Manager for ESG Investing, SimCorp

It's time to move away from fragmented ESG niche solutions and adopt a holistic framework that integrates ESG factors throughout the entire investment life cycle, encompassing both public and private market assets. This comprehensive approach, which we call the ESG Book of Record (EBOR), ensures that ESG considerations are seamlessly woven into every aspect of investment management. Learn why you need one.

Why an EBOR is Essential for Smarter ESG Investing

Smarter Decisions: Real-time ESG insights for better strategies.
Stay Compliant: Meet strict ESG regulations with ease.
Manage Risk: Spot and reduce ESG risks in portfolios.
Boost Efficiency: Seamlessly integrate ESG data, save time.
Rising Demand: Meet growing client demand for sustainable investments.
Win Clients: Show true ESG commitment and transparency.
Stand Out: Gain a competitive edge with strong ESG reporting.
Future-Ready: Adapt to evolving ESG standards and stay ahead

Why now

ESG investing is facing a reckoning. In recent years, many ESG funds have underperformed relative to traditional funds. This, coupled with political backlash in the United States, has cooled investor enthusiasm. This scrutiny comes at a time of efforts to standardize and regulate ESG investing, particularly in Europe, where new guidelines¹ aim to curb greenwashing and enhance transparency by imposing stricter criteria for using ESG-related terms in fund names.

Despite these challenges, there is widespread market consensus that ESG represents a long-term growth trend, bolstered by Gen Z’s demand for sustainable investment options.

To thrive in this evolving landscape, it’s crucial to demonstrate a genuine ESG commitment across the entire portfolio.

Carl Balslev Clausen, Group Product Manager for ESG Investing

For many investments, sourcing reliable data for all topics that investors want to monitor is challenging. Some data points may be absent or missing, delivered with low confidence or as proxy data, or accessible only at an aggregated level, such as for a complete fund rather than individual constituents. Consistent logic encoded in an EBOR manages these cases and scales with the latest prices and FX rates. It is crucial that business users can drill down to the lowest level of results and quickly access a full audit of the calculations and underlying data. This is enabled by synchronizing all business applications with the central EBOR.

What makes a true EBOR

Many solutions managing these more specialist asset types rely on add-on solutions, with data often falling outside the central compliance oversight.

A critical element of our EBOR is its tight integration with the Investment Book of Record (IBOR) and the Accounting Book of Record (ABOR)—the foundational data for the entire investment management value chain. This empowers investment managers to evaluate the impact of ESG metrics on their strategies, compliance, performance, attribution, and risk so that they can make the most informed decisions.

We have identified seven key technical capabilities of an effective EBOR:

It delivers ESG key ratios for all market instruments such as derivatives
It provides multi-currency data model allowing links to all relevant entities, such as countries, corporates, green bonds and funds
It delivers measures for data quality and data coverage
It manages proxy data and missing data
It gives easy access to full audit from any application
It reconciles with balance sheet, use of book value in ESG key ratios
It uses predefined ESG key ratios covering major industry standards and regulations

The key business outcomes for EBOR

Count everything—everything counts

Make ESG a first-class citizen in the investment process.

Encode industry standards and regulations

The benefits of EBOR - client cases

Challenge

Solution

Challenge Data challenge: One of the largest asset managers in the Nordics was collecting thousands of ESG data points from 10 different vendors.: Solution
Seamless data integration: With seamless integration of ESG data, portfolio managers, ESG teams, and other business functions have an up-to-date view of their holdings and their benchmarks’ performance against ESG metrics

Challenge Regulatory challenge: A large European reinsurance company was looking for a centralized solution capable of responding to rapidly changing regulatory requirements.: Solution
Ensuring compliance: With SimCorp’s ESG Book of Record, the client can measure and monitor key ESG metrics to ensure compliance with SFDR and EU taxonomy reporting requirements across all its investments.

Challenge Investment challenge: A European service provider managing occupational pensions was looking for a scalable, multi-asset system to integrate their ESG investing policy.: Solution
Holistic framework: With SimCorp’s integrated ESG Book of Record investing solution, the client can measure and monitor key metrics to ensure compliance with SFDR and EU Taxonomy reporting requirements across all its investments.

EBOR & the evolution of the ESG landscape

SimCorp’s EBOR and accompanying suite of products and services within ESG investing covering the entire investment lifecycle are designed to make it easier for financial institutions to align with evolving regulations and streamline the integration of ESG factors into their investment strategies.

For more information about the SimCorp ESG Book of Record, contact Carl Clausen

1. Guidelines on funds’ names using ESG or sustainability-related terms, ESMA, May 2024