Breaking the ESG Barrier Empowering Credit Investors Through Better and Faster Data

ESG in Action

A new approach to environmental, social and governance (ESG) research could ease investors’ frustrations with sourcing and evaluating the data required for objective credit analysis. Thanks to a surge in company reporting, ESG metrics can now be quantified and incorporated into analyses that were historically rooted in fundamental research alone. AB’s proprietary research tool, PRISM, does just that, putting robust, contextualized ESG data at portfolio managers’ fingertips to enable better—and faster—decision-making.

75% More Companies Reported ESG Metrics in 2021 than in 2015

Investors weighing companies’ ESG exposures often feel frustrated by the challenges of either sourcing data from third-party providers or attempting to do their own research. But their frustrations may be about to ease, thanks to a new approach to ESG research.

A Murky—and Challenging—Data Landscape

There are several inherent difficulties with using third-party ESG scorers. Not all cater to the needs of investors; those that do, tend to overly focus on risks that are relevant to equity, not fixed-income, investors. Data providers are notoriously tight-lipped about how they arrive at their scores. And investors often find that there’s little similarity between different providers’ assessments of the same company; it’s hard to say whose score is more accurate.

The in-house research solution has also presented challenges. Without clear frameworks and processes for sorting and managing data (or lack thereof), ESG analyses tend to be both highly subjective and vague.

Thankfully, there’s been a proliferation of ESG data in recent years: since 2015, roughly 75% more companies in the major credit universe1 now report at least some ESG metrics. This heralds a sea change in how credit investors can conduct ESG analysis. How can investors capture, analyze and effectively evaluate so much additional information?

The answer, in our view, lies in rethinking the approach to ESG analysis. It’s been deeply rooted in fundamental credit research for a long time, but that must evolve if investors are to harvest the ESG data opportunity without falling victim to the same shortcomings as before. Making sense of the vast volume of data requires a scalable and consistent approach.