The impact of regulatory policy on sustainability data
Globally, between 2001 and 2010, ESG Book reports the introduction of 493 environmental, social, and governance policy interventions. However, the subsequent decade saw the number of ESG policies more than double to 1,2551.
This explosion in regulation is aimed at increasing transparency and giving investors more information about how their investments are used. Of course, this means firms must process an ever-growing pool of data.
Data is growing in both volume and complexity as government mandates force corporations to track and share more and more granular details about their sustainable investment exposure. From 2018 to 2021, the global market in ESG data grew nearly 30%2 annually!
While these initiatives promote transparency and trust, they place a greater burden on investment managers who must manage new sources of information.
In practice, this means firms must now ingest, manage, and assess ever larger amounts of data. While this data can deliver valuable insight into areas like measuring the climate risk a company is exposed to, it comes with a cost. The larger the volume and more disparate the data, the more onerous the task of managing it.
The complexity of navigating different regions and industries
Regional and industry differences also impact data complexity.
While some industry organizations, like the International Sustainability Standards Board (ISSB), have made efforts to standardize reporting requirements3, sustainability data remains fragmented. Investment managers collect data from disparate sources and parse it in a way that enables comparability.
For example, an investment manager comparing sustainability risk between jurisdictions might face inconsistently formatted data between the two locales, making like-for-like comparison challenging.
Sure, they can manually manipulate data to ensure an apples-to-apples comparison. However, manual intervention invites substantial risk and, critically, makes for a slow and expensive process.
Shifting government priorities drive sustainability data considerations
Shifting political priorities also impact data management.
Newly elected governments can significantly change reporting standards. A country’s policies can shift overnight to or away from favoring green investing as a result of political leadership change.
A green-energy focus might drive enforcement of stricter sustainability standards and, ultimately, tighter reporting requirements. A political change may also create regulatory uncertainty, leaving companies awaiting updated rules.
Investment managers must quickly adapt to policy shifts. The right tools can help keep them abreast of changing requirements as their need grows to monitor regulatory developments, ensure compliance, and leverage fresh data in making investment decisions.
But what if regulations loosen, rather than tighten?
This is a question some fund managers may ask. Though we tend to see regulation grow rather than shrink, it’s certainly possible for rules to relax. For instance, recent changes in U.S. leadership included pledges to ease reporting requirements related to sustainable investing4.
In the event that regulation does loosen, it could mean companies have to report less, rather than more, details around sustainability metrics.
The problem?
Many clients still want sustainability insights – regardless of the rules. As of October 2023, more than three-quarters of investors worldwide indicated they were somewhat interested (37%) or very interested (40%) in sustainable investing, according to Statista5. One estimate forecasts that nearly $34 trillion of global assets under management will consider ESG factors6 by next year.
Without standardized reporting requirements, many firms could be left with limited or inconsistent disclosures. This would make it more difficult, if not impossible, to manage certain sustainability factors without gathering the information elsewhere.
It would also mean these managers will struggle to provide granular insights to clients who demand a peek under the hood of their portfolio.
Counter-intuitively, this means rolling back sustainability reporting requirements could actually increase the burden on investment managers who still need these insights for their clients. This could necessitate even more reliance on third-party ratings and data providers to fill data gaps.
How technology can help
Fortunately, software that leverages powerful artificial intelligence and machine learning is helping bridge the gap. This means that even when data isn’t explicitly available, it can still be uncovered by managers with the right tools.
Recent advancements in AI and machine learning have revolutionized sustainable data gathering. These tools can uncover data not directly provided by a company7. Big data, cloud computing, and advanced analytics can paint a more comprehensive sustainability snapshot without traditional reporting.
For example, sophisticated software solutions can track market sentiment in real time by analyzing massive swaths of data scraped from both traditional and social media.
Notably, this type of information might be more granular, and may be delivered faster than comparable, standard reporting.
Economic factors shaping sustainable investment data
Political policy is not the only factor impacting sustainable investment data. Fiscal policies, tax incentives, and government subsidies can all drive capital toward or away from sustainable projects.
A country that offers tax breaks for specific renewable energy investments might experience an uptick in ESG-related disclosures and an overall culture of improved data quality.
Economic cycles can also influence sustainable investment data.
A recession might lead to budget cuts and drive a deprioritization in sustainability reporting, reducing the amount and quality of available data.
Investment managers must be aware of these economic trends and adjust their data strategies to account for potential changes.
RELATED READING: 9 Reasons Why Sustainable Investing Is Here to Stay
The role of economic uncertainty
When global trade tensions, pandemics, or financial crises emerge, they prompt a shift in investment priorities. Economic stress can drive investors to prioritize short-term financial performance over long-term sustainability goals.
Periods of economic uncertainty can also reveal resilient business practices and sustainability initiatives. The market may view companies that continue to invest in sustainable practices as more resilient during economic downturns. For investment managers, this might signal an attractive investment opportunity.
Put another way: robust sustainability initiatives can imply higher performance expectations during economic downturns.
The impact on data aggregation, analysis, and investment decisions
One of the biggest challenges of modern portfolio management is aggregating sustainable investment data. This information comes from disparate sources with inconsistent reporting standards, making it challenging to develop a unified view of a company’s performance.
Collecting data is easy. Analyzing it? Not so much.
Once firms ingest raw data, they must transform it before it can yield actionable insights. Given the scale of sustainability data that firms must continually process, leveraging powerful software solutions is essential.
Investment managers are no longer just examining financial ratios, such as a company’s return on assets or profit margin. Instead, companies can perform more granular assessments, such as sizing up their risk by accounting for ESG factors. All else equal, an investment manager might consider a company riskier if they find it to have weak sustainability practices.
AI and machine learning are enhancing this capability, uncovering hidden patterns in large datasets. This enables fund managers to better predict future ESG performance trends and intelligently adjust investment strategies.
Financial performance and ESG considerations can no longer be separated. McKinsey & Company8 found that businesses with strong sustainability frameworks enjoy higher equity returns and less downside risk as investors increasingly demand transparency and accountability from the companies they invest in. And firms excelling in sustainability receive higher valuations9 and increased investor interest.
Why these changes matter to fund managers and investors
Fund managers and their clients might want to know if a particular company has substantive climate risk that could impact performance. By factoring in risks these like, fund managers can identify the most resilient companies and build more robust portfolios.
Building trust and transparency
Scrutiny of ESG practices is likely to grow, compelling companies to be more transparent, building investor confidence, and promoting a culture of accountability. With a higher demand for quality sustainable investment data, investors can make more informed decisions about the businesses they support.
Responding to market demands
Investors have spoken, and they want more ethical investment opportunities. Companies, meanwhile, are under pressure to demonstrate their commitment to ESG principles, chiefly through high-quality reporting.
Fund managers who can effectively leverage sustainable investment data are better positioned to benefit from this trend. By integrating sustainability metrics into investment strategies, investment managers can offer sophisticated products that meet investors' evolving needs.
Sustainability data is here to stay
As policy and economic factors transform the landscape of sustainable investing, managers face both challenges and opportunities. Their ability to collect, analyze, report, and leverage this data has become a competitive advantage.
Those who master this new paradigm will be well-positioned to lead in an increasingly green-focused future.
Enjoy the article? Sign up here for more insights from Arcesium.
Related reading
Sources
- 1.ESG regulations have increased 155% in the last decade, Edie, June 20, 2023
- 2.Unlocking the Hidden Potential in ESG Data, Man, December 7, 2023
- 3.Sustainability Reporting Challenges: Where Companies Often Miss the Mark, Iris Carbon, November 9, 2023
- 4.ESG in 2025: What to Expect in Trump 2.0, Vinson&Elkins, January 15, 2025
- 5.Share of investors who interested in sustainable investing in select regions worldwide in 2025, Statista, May 21, 2025
- 6.The role and rise of ESG ratings, CFA Institute, March 19, 2024
- 7.Artificial intelligence for sustainable finance: why it may help, Amundi, December 18, 2024
- 8.Five ways that ESG creates value, McKinsey, November 2019
