Investing in ESG: A Step-by-Step Guide For Investors On How To Collect ESG Data

With the increasing importance of sustainability on a global scale, there has also been a rise in interest in Environmental, Social and Governance (ESG)-related topics. Financial markets and services play a significant part in the shift to a more sustainable future. 

But it is not only financial services firms that are increasingly looking to incorporate ESG factors into their services, products and operations, there is also a growing number of investors that want their investments to have an environmental or social impact. While sustainable investments have constantly been growing over the past years, they have set record highs in 2021, rising to almost $120 billion in new investments.

In order to increase transparency and to accurately make decisions to support portfolio companies in their journey towards more sustainability, investors need to be provided with information that is consistent and comprehensive. However, the voluntary approach to data disclosure has not yet shown the required level. 

As a result, ESG reporting is becoming mandatory for an increasing number of companies. Under the Sustainable Finance Disclosure Regulation (SFDR), asset management companies are now required for the first time to disclose information regarding their investments’ ESG risks and impact on our planet. In December 2021, assets in the SFDR Article 8 and Article 9 funds reached a total of 4.05€ trillion - representing about 42.4% of all funds sold in the European Union.

Increasing regulations and growing public pressure imply that it is probably just a matter of time until you will have to start collecting ESG data of your portfolio companies - so, if you haven’t started with that yet, here you will find all you need to know as an investor about ESG reporting and data collection and how to get started.

Regulations for Financial Services: SFDR (EU) and SDR (UK) 

There are two regulations that are of importance for asset managers and owners when it comes to sustainability disclosure: the SFDR in the EU, and the SDR in the UK.


The Sustainable Finance Disclosure Regulation (the “SFDR”) came into force in December 2019 and started to apply across the EU from March 2021. This was followed by a new EU Regulation on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”). The Taxonomy Regulation has applied on a phased basis since 1st January 2022.

For non-EU AIFMs (Alternative Investment Fund Manager) that have marketed one or more of their funds in the EU since March 10th 2021 the same regulations as for EU AIFMs apply.

Overview SFDR

SDR (FCA’s ESG rules)

Coinciding with COP26, the Financial Conduct Authority (FCA) published a discussion paper (DP21/4) outlining its approach to new UK sustainability disclosure requirements (“SDR”) and a sustainable investment labelling system. Under the new UK SDR’s, asset managers (i.e., full-scope UK authorised AIFMs, UK portfolio managers and UK sub-threshold AIFMs), asset owners and listed issuers will be required to report on their risks, impacts, and opportunities related to sustainability. Building on measures that were already taken or are in the process, the regulation will introduce disclosure requirements that are consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) across the wider economy. 

At this stage, the FCA is still contemplating whether prescribed disclosure templates should be used, as is the case under SFDR. The deadline for responses to DP21/4 closed on 7 January 2022 with the FCA planning to consult on policy proposals to implement the new system in Q2 2022.

Overview SDR

5 steps how to collect ESG data as an investor

Although the whole process might seem a little overwhelming at first, it doesn’t have to be. In the following part, we provide you with a step-by-step guide on how you, as an investor, can get started with your ESG data collection. 

1. Define your sustainability strategy

To begin with, while drawing up your sustainability strategy, put an extra focus on getting your environmental, social, and governance (ESG) proposition right, as this links to a higher value creation in the long run. Nowadays, a strong ESG position does not only drive growth and attracts top talent on a portfolio company level, it also secures and increases the value of your investment portfolios. While it remains challenging to accurately monitor and measure ESG factors, a thoughtful approach to ESG integration is becoming a must-have for Limited Partners (LPs).

2. Define your ESG reporting framework

The following step should include the selection and definition of your ESG reporting framework, which is in line with internationally recognised industry standards, ever evolving regulatory requirements and LP requirements. The alignment of your portfolio with reporting frameworks, such as GRI, PRI, GHG Protocol, SBTi etc. will also facilitate the process of analysing, comparing and reporting your ESG data. 

3. Enable and educate your portfolio companies

As previously mentioned, aligning your portfolio with reporting standards will enable your portfolio companies to easier calculate, collect and report required ESG data. 

At present, carbon transparency is still the most complex part of ESG management. According to a BCG survey, about 91% of companies are currently failing to measure the full scope of their emissions, making it challenging for them to track their emissions and set the right targets. On top of that, the calculation of a corporate carbon footprint can be very time-consuming, taking on average 6-10 weeks. Yet, thanks to holistic carbon management solutions like Planetly, this process can be automated and facilitated. 

In general, portfolio companies go through a steep learning curve when implementing ESG reporting. Therefore, ensure that they are educated on best practices on how to understand, calculate, and find ESG data. 

4. Periodically collect ESG data 

Following the previous step, start collecting your ESG data according to the defined framework and regulatory requirements. Additionally, aggregate all the collected data on a fund and investment firm level. 

5. Disclose and steward

Finally, you should navigate your portfolio based on the collected ESG data and compare the portfolio performance against benchmarks. Moreover, ESG metrics should be discussed regularly in board meetings to help you determine whether investing into a particular business can have a positive impact on one of these three areas in the future. And lastly, make use of aggregated ESG data for disclosure requirements and LP reporting. 

The creation of a transparent ESG portfolio requires a vast amount of data and analyses. Fortunately, there are tools like our ESG Portfolio Manager that will enable you to implement fully compliant ESG reporting and management for your investment portfolio. 

Would you like us to show you how our software solution can simplify your ESG management? Then feel free to reach out to us today or book your free product demo.

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