The environmental, social and governance data market could hit $1 billion in 2021 given increasing demand for ESG data and offerings from a growing number of providers, according to research firm Opimas.
The increase assumes annual growth rates of 20% for ESG data and 35% for ESG indexes. Opimas estimates total spending on ESG data was $617 million in 2019.
According to the study, 60% of ESG spending came from Europe, where regulators require that ESG considerations be part of institutional investors' fiduciary duty. One-third of ESG data spending came from North America. Asset managers were the heaviest spenders on ESG data, comprising 59% of the market, as they buy data for different use cases, including raw data and ESG ratings, from different providers.
The research firm suggested that ESG data providers should consider adding qualitative data with their quantitative data offerings "as ESG integration and the corollary need for granular data continue to grow." Opimas expects financial analysts, especially sell-side analysts, to embrace ESG criteria as the firm believes the criteria can contribute to "enriching quantitative information within their qualitative research."
Opimas also said comparing ESG data for different companies remains difficult. The research firm suggested ESG ratings should just be used to assess a company's evolution over time and its trajectory toward sustainability instead. The firm noted that carbon emissions data is "still too imperfect" to be used in the investment decision process.
"With the development of the ESG data range covering different degrees of granularity, the challenge will be to find the right balance between usability and granularity," the study concluded.