Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search

Subscribe to Asset Servicing & Fintech Insights

Discover more information in our monthly publication, the AXIS newsletter, including industry trends, product innovation, Fintech and more from our team of experts.

ESG Through a Data Science Lens

For institutional investors with ESG goals, data is the name of the game. But with inconsistent data sets, no unified evaluation methodologies and a lack of global standards, investors can struggle to gather insights into portfolios. Data science can help make that easier.

As seen in global banking and finance

Across the industry, we’ve seen an increase in the number of institutional investors who have committed to ESG investing. In fact, according to “The Art of Alpha: It’s All About Investment Data Science”, a 2021 Northern Trust white paper based on a survey of 300 global asset managers, well over half (59%) currently factor ESG data into their investment process, a number that is likely to grow in the coming years.

As institutional investors increasingly target sustainability goals, they will need fundamental and diligent analysis at every level: investment processes, compliance practices, organizational design, governance and reporting.

Yet today, an explosion of data has created an environment where both sides of an investment are struggling to keep up:

  • Transparency and accountability are the foundation of ESG investing, and investment managers feel the pressure – based on regulations, board accountability or investor demands – to demonstrate that their products are, in fact, green, and not greenwashed.
  • Institutional asset owners, meanwhile, have a fiduciary responsibility to their beneficiaries and, in some instances, the public. They need access to data points and metrics to verify a portfolio is achieving stated objectives, to rate ESG factors, and to help manage related risks and compliance.

While today multiple vendors offer access to ESG data, there is a lack of shared standards around which datasets are tracked, how they are tracked, and how to draw out and act on insights from that data.

Without shared industry standards of ESG analysis and reporting, and with data streaming in from multiple sources and in inconsistent formats, often manually tracked in spreadsheets, many questions arise. How can institutional investors make their small sustainability investing teams work smarter? Can they access the ESG data needed to drive portfolio-level decisions? What signals can they derive from the data that will help guide these decisions?

Data science can streamline the broad, non-standardized world of ESG data analytics

Data science allows analysts to sort through huge amounts of information quickly and efficiently. The technology can integrate data from multiple sources and find patterns that help measure, analyze and report ESG investments across key applications.

  1. Screening – A fundamental use of ESG data is to screen for appropriate securities. Data science can allow managers to get deeper on their screening, including comparing securities to understand their impacts, especially across the different segments of environmental, social and governance, and across industries. For example, a data science program can compare the score of a credit card company with an auto maker. Clearly the environmental factors of the car manufacturer weigh heavier on its score than that of a credit card company. However, other data points may make one company more appropriate than the other, and the right data program can allow investors to analyze and weigh different factors on a level playing field to understand which one truly is the better fit for a portfolio to meet the investors’ sustainability objectives.
  2. Risk and performance analysis –Asset managers need to measure and report on outcomes if they are to meet the expectations of their investors and regulators. The need for better sustainability data will increase as regulators place more demands on investors for reporting on ESG-related risks, much of which differs across jurisdictions. This means being able to provide more granular reporting on ESG holdings. For example, one investor may put special emphasis on gender equality risk while another cares primarily about carbon emission risk. Being able to quickly pull together custom data views on different holdings will be crucial for managers in gaining their clients’ trust and, for that matter, access to their capital.
  3. Portfolio optimization and simulation –As investors enter the ESG realm for the first time, being able to understand how changes affect their portfolios on a pre-trade basis is crucial. Data science tools and feeds can allow investors to simulate changes to their portfolios and understand the potential impact on ESG scores.
  4. Reporting and benchmarking –Today, the burden of aggregating, analyzing and reporting ESG portfolios falls to investment teams that are already stretched thin. Digitizing this process will allow managers to provide detailed evidence of how they achieve returns and whether the results are based on skill and ESG knowledge. This is crucial for a client base that has access to similar tools, and that is doing comparable analytics. As the datasets become larger and more granular, it will become increasingly difficult for the investment teams, regardless of size, to effectively analyze the data and provide meaningful intelligence without digitization.

To keep up with the many pressures that are emerging around ESG investing, relying on data science to enable decisions and to communicate those decisions to stakeholders will be key.

As ESG increases in focus, regulatory frameworks are likely to grow, and institutional investors will be ahead of the curve if they focus on how to put their data to work now.

Paul Fahey portrait

Paul Fahey

Head of Investment Data Science, Asset Servicing, Americas
As Head of Investment Data Science, Paul works with asset managers and allocators to better understand the investment decision process and to improve future decision making. Partnering with expert fintech firms to leverage the power of data, behavioral analytics, investment analytics, and Northern Trust’s peer universe data to drive meaningful improvement to their investment strategy.

© 2023 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret) [VAT if applicable], address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.