On 28 October 2024, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published the results of an explorative study (in the form of a report) into how asset managers deal with the availability, reliability and comparability of Environmental, Social and Governance (ESG) data. The study report includes key insights that can aid asset managers in developing processes, systems, and internal controls for effective risk management concerning the use of ESG data.

The AFM oversees investment firms and managers of alternative investment funds and UCITS, ensuring compliance with rules for sound business operations and adherence to European laws on integrating sustainability risks into business processes and risk management. Asset managers need ESG data to identify sustainability risks, assess adverse impacts of investment decisions, and uphold the “do no significant harm” principle. They can obtain this data from issuers, develop it in-house, or buy it from third-party providers. However, challenges with data availability, reliability, and comparability mean these needs are not fully met, especially in the short term. Reliable, independent ESG data is essential for effectively managing sustainability risks in business and investment practices. To address this, the AFM conducted an exploratory study, gaining insights into how ESG data is managed and verified for accuracy and completeness.

The AFM’s main observations were:

• Asset managers have established the governance structure with regard to the management of ESG data risks in different ways.
• Many asset managers use one or more third-party data providers for the majority of their ESG data needs.
• Using an unambiguous definition of data risk supports asset managers in identifying and managing this risk.
• All asset managers have both proactive and reactive policies and control processes to ensure the quality of ESG data.