Environmental, Social, and Governance (ESG) refers to a set of standards that organizations can use to measure their impact on the environment and society. It helps measure the ethical impact and sustainability of an investment in a business. ESG has been on the rise in recent years as more and more companies are taking these factors into consideration when making decisions. In fact, 85% of investors considered ESG factors in their investments in 2020.
ESG has become a key factor in investment decision-making as investors see it as a way to protect businesses from future risks. ESG is also becoming increasingly important in risk management because more and more regulations are requiring companies to disclose their ESG performance against set benchmarks to avoid fines and influence public opinion. Having quick access to this type of information can help investors assess a company’s risk and make more informed investment decisions.
ESG and risk management
As with any business decision, there’s a degree of risk involved with ESG that can affect both a company and its stakeholders. Anyone including shareholders, employees, suppliers, and even customers may be affected when a company receives a negative ESG score.
When it comes to ESG investments, there are risks of both a lack of understanding and a lack of data. Many investors struggle with the lack of definitions and standardization in regard to ESG factors, making it a difficult method of investing to generate returns. Additionally, with a lack of available data on companies’ and industries’ ESG performance, it can be difficult to know which investments carry more risk.
Whether it’s to manage investment risk or to mitigate the risk of governmental sanctions and public backlash, ESG risk management is essential to good corporate decision-making.
When companies don’t take ESG factors into account, then there are a number of risk factors they are exposed to, including:
1. Performance risk – There’s always the risk that an investment or business decision may underperform its benchmark or peer group. With ESG-based decision-making, an organization might see a higher level of performance risk since companies that score well on ESG metrics may be less profitable than companies that score poorly.
2. Regulatory risk – ESG performance is subject to increasing regulation. Companies that don’t adhere to ESG standards may be subject to huge fines from regulators. This can hurt a company’s bottom line, returns, and even the way customers perceive their brand.
3. Reputational risk – With reputational risk, a company may suffer damage to its reputation, leading to a decline in its stock price. As customers become more and more conscious and concerned about corporations’ influence on society and the environment, companies that score poorly on ESG performance metrics may be more likely to suffer reputational damage.
4. Changing landscape – The ESG landscape is constantly changing, making it difficult for companies to keep up with the latest standards. This can lead to companies being out of compliance with ESG standards and facing the risks mentioned above.
The challenges with using ESG data
There are several practical challenges when it comes to keeping up with ESG data. One of the biggest issues is that the sheer volume of data is nearly impossible to track and generate meaningful insights from. For example, it’s estimated that there are approximately 2.5 quintillion bytes of data generated each day. That’s 250,000,000,000,000,000,000 pieces of information!
Financial analysts and web data providers who are used to working with more traditional data sets might find ESG data challenging for a few reasons:
- Not only is there a massive quantity of data, but it’s spread out across different silos and platforms, making it difficult to get a holistic view.
- ESG data is often unstructured and complex, making it laborious to analyze, interpret, and predict.
- Data is constantly changing, meaning that any analysis needs to be regularly updated, a challenge for even the most sophisticated risk management data teams.
- ESG data is often sensitive and confidential, making it problematic to share with stakeholders.
Despite these challenges, ESG data is still a valuable tool for informed decision-making. For a tech-based solution providing clients with valuable insight on potential risks based on reliable data, it’s essential to present a well-rounded picture of both trends and risks, so including ESG data in your insights allows you to offer more value to your end user.
The best way to generate insights that provide value to your users is by scanning as many sources as you can to gather relevant data points. This includes sources such as news sites, forums, regulatory agency sites, blogs, and more.
Monitor ESG data with News API
Turning to an API to gather ESG data will help you overcome the challenge of huge quantities of data and allow you to gather relevant sources efficiently. By selecting a News API, monitoring solutions from fields such as risk management solutions or financial intelligence can track a company’s ESG performance and public record in order to provide reliable and informed data to users. A News API will also continuously scan the web and provide regularly updated content and sources so that your ESG insights are constantly updated with new information.
Webz.io provides a News API that will help you meet the challenges of collecting ESG data so that you can provide your users with holistic insights without having to worry about any gaps in your data.
There are three key reasons why Webz.io’s News API is a good option for monitoring solutions that cover ESG risks:
1. Coverage – News API offers wide coverage of environmental, social, and governance news. With access to 50TB of historical data dating back to 2008 from sources such as news, blogs, online forums, and reviews, Webz.io’s News API can be used to track trends and offer data that helps your clients develop long-term strategies for managing ESG risks.
2. Quality – The API provides high-quality, noise-free data that is contextualized and can be filtered and categorized. The API also provides access to a range of tools and features that can help monitoring solutions and organizations analyze and interpret ESG data.
3. Low latency – The API provides access to a wide range of news sources with low latency, allowing organizations to monitor data and risk at scale and in near-real time to quickly identify any potential risks that may be a threat to your customers.
To wrap up
The best way to understand the implications of ESG risks is to first have access to all the information to properly analyze it. However, gathering all the various web data points from seemingly endless sources can be challenging. Missing a key news item might mean glossing over a significant risk signal.
Instead, use a News API so that you can focus your time on providing value to your customers. With Webz.io’s News API, you’re able to access a wealth of data at your fingertips that can be filtered down to the critical information you need to generate key ESG insights. In addition to News API, Webz.io also offers additional tools such as APIs for blogs, reviews, government data, and more. These APIs allow you to gather a greater variety of data from different types of sources to get a more balanced overview of complex topics such as ESG risk management.
Learn more about how Webz.io’s News API can help you monitor ESG risk by speaking with our data experts today.
