For active managers, the commercial and societal opportunities offered by ESG products are open-ended.   Unfortunately, so are the costs.

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Escalating ESG costs (both external and internal) are a function of:

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• the growth of the category

• the growing sophistication of ESG strategies (inclusion is more expensive than exclusion)

• increasing regulatory requirements

• initiatives that combine significant internal personnel in addition to internal and external data, particularly Stewardship

• the consolidation of ESG data vendors

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This trend is particularly evident in Europe where research budgets have declined at the same time that ESG strategies have flourished.

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The Need for ESG Benchmarks

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In order for ambitious long-term ESG objectives to be achieved many stakeholders will have to participate including:

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• ​Governments

• Regulators

• Asset Owners

• Investment Consultants

• Industry Organizations and Advocacy Groups (UNPRI etc.)

• Asset Managers

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While all of these stakeholders understand the benefit of achieving ESG objectives, none, including asset managers themselves, fully understand the (asset management) cost of implementing these increasing ambitious strategies.

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Frost ESG/Stewardship Strategy Benchmarks

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Building on the FrostDB research database, the ESG/Stewardship Strategy Benchmarks will capture:

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• Detailed external ESG input spending including Databases (by type), Proxy Advisors, Climate Data and other ESG inputs.

• The application of these inputs across asset classes including Passive and Private Assets.

• Detailed internal ESG spending across multiple categories including data, internal research and personnel.

• Data related to Stewardship initiatives.

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Critically, the analysis is dynamic, capturing changes in ESG spending on both a historic and forward looking perspective.

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Process

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• Managers submit data

• Managers receive their data against an AUM-adjusted series of anonymized peer universes

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Outcome

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   Data and analysis from the Frost ESG/Stewardship Benchmarking Database will enable managers to calibrate ESG spending and make more informed decisions related to capital allocation, product planning, design and pricing.

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   It will also be useful in interactions with asset owners/consultants and other societal stakeholders.

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   Related Paper:  Why MiFID II Threatens European ESG Outcomes   

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