Since the creation of the sustainable finance market, we have witnessed a rapid evolution of its different dimensions – from the catalogue of sustainable instruments available via policy developments to investors’ growing interest in investing responsibly. These developments are all powered by data.
Data is the new gold, and sustainability data is no exception. Investors wishing to contribute to a positive environmental and/or social impact through their investments need access to granular, meaningful, and structured sustainability data to make informed investment decisions and report on the impact of these investments.
However, sustainability data is spread over multiple sources and presented in different, often incompatible formats. This highly unstructured data is difficult to compare in a meaningful way, and it represents a Big Data challenge that has the potential to hamper the future growth of sustainable finance, starting with that of the sustainable bond market. This is the problem that we set out to solve with the LGX DataHub.
Overcoming data fatigue
There is no lack of sustainability data available today. The problem is that identifying, collecting and structuring it all is a manual, resource-heavy, and time-consuming task. Yet, access to this data is crucial for asset managers and investors who want to gain a detailed understanding of what lies behind securities marketed as green, social, or sustainable in order to build sustainable investment strategies based on sound and rigorous analysis.
The fundamentals of structuring and marketing sustainable products are changing fast. Understanding the full spectrum of an investment is therefore the first step in ensuring the credibility of an investment strategy – especially for those who commit to an ESG dimension in their investments and want to ensure the highest alignment between their mandates and their allocations.
The Luxembourg Stock Exchange (LuxSE) has contributed to the growth of sustainable finance since the listing of the European Investment Bank’s Climate Awareness Bond on the exchange in 2007; what is widely considered the world’s first green bond. In 2016, LuxSE established the Luxembourg Green Exchange (LGX), the world’s leading platform for sustainable securities, which now encompasses more than 1,000 green, social, sustainability and sustainability-linked bonds.
Identifying lack of access to sustainable finance education and structured sustainability data as important barriers to the growth of the industry, LuxSE developed the LGX Academy and the LGX DataHub in 2020.
Gathering meaningful data
Given the lack of universally recognised standards and frameworks for sustainability reporting, it can be challenging to collect, harmonise, structure, and make available sustainability data in a way that is reliable, meaningful, and comparable.
While a lot of information on green, social, and sustainability (GSS) bonds is publicly available, it lacks a consistent format by which investors can compare this data. On top of that, important information is often presented in raw text, meaning that material indicators still need to be carefully identified and extracted. Gathering this information is currently done manually by many market participants, and is a cumbersome, time-consuming, and error-prone process.
Seeing the data challenge as an opportunity to further contribute to the sustainable finance agenda, LuxSE began working to make the LGX DataHub a reality back in 2019. The LGX DataHub is a unique and centralised database that provides structured data on almost the entire universe of listed sustainable debt securities worldwide, all in one place.
Covering more than 3,200 sustainable bonds, the LGX DataHub turns unstructured pre- and post-issuance data into a structured form and thereby enables investors and asset managers to access reliable, meaningful and comparable sustainability data, and understand and compare the environmental and/or social impact of different debt securities.
With a typical sustainable bond carrying on average five sustainability-related documents, LGX has scaled up the data collection process, relying on cutting-edge document-handling technologies. Crucial sustainability information is extracted according to a standardised data model designed by LGX to ensure compatibility across bonds and issuers. The data is then integrated into the LGX DataHub after having been rigorously controlled by LuxSE’s team of internal sustainable finance experts.
The LGX DataHub contains a vast selection of key data points that have been carefully chosen to reflect investors’ ever-growing interest in different project categories and impact metrics with a high level of granularity. These data points include, for example, alignment with standards, amounts allocated, contribution to SDGs, and annual GHG emissions reduced or avoided. The tool also offers advanced data analytics features, which are constantly expanded to enable even more efficient and in-depth analysis.
Harmonising and standardising data
Sustainability data is made available through a vast variety of documentation, including reports from asset owners and issuers. While there are currently no universal norms for sustainability reporting, some progress has been made when it comes to normalising and harmonising this reporting. As an example, in June 2021, ICMA published an updated version of its Handbook on Harmonised Framework for Impact Reporting, which puts forward general principles and recommendations for reporting that will act as a valuable resource for issuers developing their own reporting.
Aside from voluntary guidelines, regulatory frameworks may also bring about more standardisation in the sustainable bond market. For example, the proposed EU Green Bond Standard requires issuers wishing to align with the standard to publish pre- and post-issuance information according to pre-defined templates. The increasing use of technical criteria to define eligible projects, such as those laid out in the EU Taxonomy, is also expected to be a driving force for better comparability.
For sustainable finance to grow, access to reliable, meaningful, and comparable sustainability data will play a pivotal role. With the LGX DataHub, we provide a solution that streamlines analysis and data availability. By combining intelligent structure and an unprecedented level of granularity, we turn unstructured information into insightful data. In other words, the LGX DataHub puts investors and asset managers back in the driver’s seat, enabling them to spend more time on value-added analysis and less time on collecting and structuring data.