The TRADE predictions series 2023: ESG

Participants from FINBOURNE Technology and Fidelity International predict how environmental, social and governance (ESG) investing will accelerate in the upcoming year.

By Editors

Tom Stevenson, head of equity trading EMEA, Fidelity International: The trading community has made great strides in the promotion of wellbeing, diversity, and sustainability in recent years. However, there is always more to be done, and I believe 2023 will see more trading desks addressing the importance of these topics. Perhaps we may even see a rekindling of the debate around shortening market hours in Europe, to help improve outcomes for end clients in terms of transaction costs, and to potentially address some of the themes above.

Liquidity is always a hot topic, and as markets evolve, we have seen plenty of development from the sell-side, vendors, and venues to bring block liquidity together in efficient, cost-effective ways. Last year we also saw innovation focusing on small and mid-cap securities and it will be interesting to monitor the progress in this challenging area. Data and technology – these are not new subjects, but the interrogation of trading data to help with pre-trade decision making and liquidity sourcing will continue to be vital in 2023. Embedding this into trading applications is a challenge, and we may see the industry focus on interoperability solutions as the year progresses.

Thomas McHugh, CEO and co-founder, FINBOURNE Technology: In 2023, ESG is now the new normal. Investors expect asset managers to generate sustainable returns across multi-asset portfolios. They also expect not just a portion of these investments but the majority of their portfolio, to positively impact on the community and the environment. However, the current status quo of best endeavours approaches and heavily manual workflows, which many firms operate in, particularly in ESG investments and sustainable finance, needs to go. Together with spiralling, operating costs, this way of working poses a considerable risk to both reputation (greenwashing) and human capital (employee burnout). ESG is not an outlier or a problem in isolation. If anything, the ESG data challenge is the epitome of what is wrong with the capital markets infrastructure today. It is all the limitations stemming from a mainframe legacy, compounded into one investment area, that just so happens to have planet-saving consequences. From the aggregation of complex and diverse data sets, and the interpretation of non-standardised reporting frameworks, to a lack of entity-level granularity. And at the heart of it, the fundamental problem we are helping firms to make sense of – understanding and deriving value from their data. Interoperating with the existing systems landscape and giving firms the flexibility to migrate between data models is going to be the number one priority in 2023, if firms are to achieve the resiliency needed to manage climate-related risk, meet stricter ESG regulations, and investor-driven transparency. Importantly, by provisioning clean, interoperable data, firms can seek out emerging opportunities to deliver both meaningful change to our planet and returns to its inhabitants.