Tackling the climate crisis

Using data to put a spotlight on ESG

ESG credentials are shaping how we look at companies. We explore how data can shine a light on companies’ ESG profiles and power investment in a better future

1 Aug 2020

An organisation’s environmental, social and governance (ESG) credentials, which look at how a company is run, treats its people and protects the planet, are becoming increasingly important in determining investments, partnerships and relationships. At Legal & General, we believe every decision matters. As a society we should be supporting organisations that are doing good for their people and their planet, which is why our Mastertrust pension scheme has an ethical multi-asset fund as default. But with so many companies claiming to have strong ESG credentials, we need to be able to separate those that simply say they’re doing good from those that are actually doing it.

That’s why we’re using data to identify the companies that are building a better tomorrow. “For us, ESG is made up of three big groups of data, each of which is made up of a whole series of data points,” explains Peter Jackson, Director of Group Data Science at Legal & General. “Companies that score well on ESG analysis will be good for society, so we need to collect the right data to empower investors to make the right decisions.” Our Ethical Trust fund, for example, tracks the performance of the FTSE 350 Index, but uses ESG data analysis to exclude shares of companies whose businesses don’t meet a set of ethical and environmental guidelines. We’ve also used ESG data to set up our Future World funds, which invest in companies taking action on things like climate change and supporting developing countries.

Peter Jackson

Director of Group Data Science, Legal & General

People want to know that their money is being invested in things that are good for society and the environment. This is democratising investment.

Peter Jackson

Director of Group Data Science, Legal & General

Data can help those organisations that might not be quite where they hope to be in terms of their ESG credentials. It can create a baseline, which means they – and we – can measure their improvement over time. “Some companies may be behind the game now, but they may have a policy where they want to improve their social inclusion or their governance, which you can measure over a period of time. Helping companies understand their ESG profile will support better decision-making to improve society, and investors might want to support them in doing that,” says Jackson.

Empowering people through data

Using data to present an accurate picture of a company’s ESG profile enables us to bring transparency to a set of issues that are increasingly important for society. This empowers individuals and organisations to make decisions that are good for the future. “The days have gone where we just handed over our pension contributions or our investments and just left it to somebody else to invest,” says Jackson. “People are becoming more aware of ESG issues and want to know that their money is being invested in things that are good for society and the environment. This is democratising investment.”

But just having the data is not enough. A person isn’t likely to want to read through a 50-page document about each and every ESG data point pertaining to a company. Being able to transform that data into digestible and accessible information is crucial, and this is something we’re continuing to work on at Legal & General by driving data literacy across the Group. As Jackson explains: “One of the biggest skills of a data scientist is storytelling. If you put this data insight out onto a digital platform so people can consume it with ease, in a format that’s very visual, that democratises it even further and enhances inclusivity.”

Data is an enabler, and it’s down to us as a society to identify what it is we want to enable. “With anything we do, whether it’s modular building, affordable homes or ethical investment, getting better data enables us to make better decisions faster,” explains Jackson. Through adding a layer of transparency to companies’ ESG profiles, data can empower people and companies to support businesses that are building a better society. That’s the power of ESG. That’s the power of data.