ESG reporting will be key role for custodians

Custodians will take on a key reporting role in the emergence of environmental, social and corporate governance (ESG) factors within the industry according to an expert.

Speaking to Global Custodian, Trevor Allen, product sales specialist at BNP Paribas Securities Services spoke of how custodians would take up the role of a ‘big data aggregator’ in order to inform clients of relevant ESG developments

“In the ESG instance the custodian is a big data aggregator so if you look at the asset manager as the brains of the investment process, the custodian is very much the central nervous system so it will be collecting all the data and feeding it back to the asset manager,” said Allen.

“The reporting role is the next step for custodians in this space; for example, in the area of risk analytics the custodian will go into a company, apply an ESG score to each individual company’s portfolio holdings and build this up to asset level.

“Reporting will be the key field for custodians as reporting is the key tool for feeding back to clients.”

Allen’s comments follow an increasing awareness of ESG in the industry.

Last month, BNP Paribas signed the Principles for Responsible Investment (PRI) becoming the biggest custodian to sign up to the initiative so far, which aims to provide further guidance on ESG factors and how they can be incorporated into investments.

In addition, last August Japan’s Government Pension Investment Fund established a new forum containing some of the world’s largest asset owners to promote environmental, social and governance (ESG) when making investment decisions.

Global Custodian also reported in the summer on the growing demand across the industry for ESG awareness and that custodians in every region are facing demands for greater incorporation of ESG factors.

Custodians are screening companies for a variety of ESG considerations varying from carbon emissions to social factors such as human rights and diversity issues.