Nisarg Bhatt, ESG & Climate Data Product Specialist

Nisarg builds software products that make ESG and climate data more usable so that investors can better understand and quantify an investment’s financial risks related to climate change. He was kind enough to sit down with me to discuss the overall landscape of these products and related career opportunities.

What is an ESG and climate data product?

ESG and climate data software products are used by investment professionals interested in incorporating financial risk factors from a sustainability or climate perspective into their investment decision making process. These are usually institutional portfolio managers, pension plans, risk managers, asset managers, or asset owners and these products provide them with the data they need presented in a format that enables them to make effective investment decisions.

The foundation for most of these products is financial and ESG data from providers such as MSCI, ISS, S&P, Refinitiv and RepRisk as well as climate data and research from organizations like the Network for Greening the Financial System (NGFS) and the UN’s Intergovernmental Panel on Climate Change (IPCC).

Product development & modeling teams then make strategic decisions around which climate models to use, what assumptions to make, and what’s material for different industries and asset classes, and then transform all of that into useful information that’s presented in a format that enables decision making. Examples of these products include BlackRock’s Aladdin Sustainability, ISS ESG, and the MSCI ESG Manager.

How are ESG and climate data products used?

When the ESG data industry was in the nascent stage, most of the work was centered around coming up with a single ESG rating or grade for a given company. As Joel Makower of GreenBiz pointed out in his recent 3-part series on ESG ratings, there are a lot of challenges with using that approach to evaluate an investment’s financial risk.

We’re now in a place where many investors have developed a much more nuanced understanding of the drivers and implications of climate and ESG related risks and are looking to software products like these in order to gain a more wholistic view of any given investment. They’re still looking at fundamentals and datapoints from balance sheets, but now they also want to know things like if a company is working on emissions beyond just scopes 1 and 2, if it’s engaging with its supply chain, or if it’s made a Net Zero commitment.

The regulatory environment is changing the landscape as well. The EU’s Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory ESG disclosure obligations for asset managers and other financial markets and the UK is likely to make Task Force on Climate-related Financial Disclosures (TCFD) disclosures mandatory by 2025. Very soon there’s going to be a lot more data available for investors to consider, and that availability combined with increased investor knowledge around how to interpret that data is causing a big a shift in how investment decisions are being made.

What are some of the challenges of working on these products?

I think the biggest challenge is that different decision makers are interested in different types of data and use data in different ways. For example, a fixed income investor would want to know things like how climate and ESG factors could impact an investment’s spread or probability of default whereas an equity investor would want to know more about the implications for gross profit, gross revenue and net income. Materiality is also a challenge because it’s fairly subjective from investor to investor; the software has to be flexible so that valuation models can be customized to each investor’s assumptions and approach.

What are some examples of career opportunities related to these products?

Data modeling & science

Data modelers and scientists look at the models from the IPCC and NGFS and the data from different vendors and figure out how to convert all of that that information into something that’s understandable to a lay person. The people on these teams usually hold a PhD or master’s degree in climate science, climate and energy modeling, or data science.

Adoption & engagement

The adoption and engagement team works with clients and other potential end users to develop requirements that will ensure that the product will effectively support the investor decision-making and reporting processes. The team uses that input to decide what assumptions and models to use and what functionality to include.

Usually, people on these teams have a good understanding of how asset classes work, have assisted people on financial teams before, understand sustainability metrics, or have experience with engaging institutional clients around the tools that they use. Customer relationship management, engagement, and financial skills are all very important in these roles.

Product

The product team works in partnership with the data, adoption, and research teams to manage the development process and turn all of that work into an actual software product. They develop a deep understanding of what each metric means and what the use cases are for it so they can create a valuable product.

People on the product team usually have experience with product management or product engagement combined with a good understanding of climate science and how sustainability and ESG metrics work. You need to be really passionate about sustainability for these roles because you spend a lot of your time thinking about what users want from each metric, how users think about those metrics, and how that all comes together to make the product better.

ESG research

ESG research specialists are usually investment research analysts or portfolio managers at the firm who will ultimately be the internal end users of these tools. They’re the people actually doing the research and using the data to support investment decision making. They utilize the product and provide feedback to the product team.

People on this team usually have a Chartered Financial Analyst (CFA) certification or equivalent experience in research fundamentals, how markets work, or deep ESG expertise such as a PhD in sustainability research or experience managing an impact portfolio. Other certifications I’ve seen people doing this work have beyond CFA are CFA’s Certificate in ESG Investing, the Global Association of Risk Professionals (GARP)’s Sustainability and Climate Risk (SCR) Certificate or Financial Risk Manager (FRM).

What are some of the key skills for success in this space?

You need to understand the sustainability research produced by organizations like the NGFS and the IPCC and its implications as it’s fundamental to everything we do. And as I mentioned earlier, passion for sustainability is really important. This is a new field, there are times where you’ll feel like you don’t know enough, and that’s OK because everyone else is learning too and no one knows it all. Just keep that hunger there and continue trying to achieve something bigger than ourselves.

What is your favorite part of your job?

I love that these products will help a lot of people. We’re enabling investors to make better investment decisions that will help us transition to a world that will stay under 2 degrees and take us off the path to destruction. These tools are helping deploy money to support a just transition to a net zero economy. I feel so much gratitude to be working in a role where I feel like I’m supporting this change.

What is the hardest part of your job?

While it’s really exciting to see how fast ESG is growing and how many investors are incorporating ESG factors into their decision-making processes, adoption is still a challenge. There are a lot of nay-sayers who don’t think that climate change is real, or that we don’t need to transition as fast as we’re trying to, so the adoption piece will continue to be important to focus on. We still have work to do in order to get more people educated on these metrics and how to use them, and to trust them even though this practice is still somewhat nascent.

We need things to happen quickly so that we can facilitate a just transition and these risks aren’t just investment risks, they’re risks for everyone, so I’m excited to see the knowledge and expertise and demand for these products growing.

What professional achievement are you most proud of?

Securing a role working at the intersection of ESG investing and product management. Before this role I was on the product support and engagement side which I really enjoyed, but I’m excited to be driving the work and responsible for the development of the product itself and to be the person actually making the changes. I’m proud to be making something that people will use, and I especially enjoy it when we do a demo of our product’s capabilities and see how excited our clients get when they understand how our product can support their work.

What was your path to this role?

I started by working on non-ESG related software products for financial institutions. I had a real passion for sustainability so I raised my hand whenever an opportunity came up and made sure to get in front of the people who were deciding how these new teams would be structured. In early 2020 when this area was starting to get a lot of interest, I volunteered to help the teams that were working on it while developing my own sustainability subject matter expertise. That enabled me to transition onto the engagement team and later into a product management role.

What’s your advice to someone interested in a role like this?

The sustainability arena is starting to reach a maturation point where you can’t just show up and figure it out, you’ve got to bring some knowledge and skills to the role. Develop research skills, learn what sustainability metrics are, and develop your own nuanced views about sustainability before diving in. Go for that MBA or that internship or certification to learn more about the field and what you really like.

If you want to work on the product side, take some time to learn about the ESG data vendors, what tools are out there, and how people use sustainability data when making investment decisions.

What are your favorite resources?

I really love podcasts, some of my favorites are:

And I recommend everyone read the IPCC and NGFS white papers which are so critical to all of the work we do.

Who is your sustainability hero?

I admire a man who has lived through it all and still provides hope to our generation, Sir David Attenborough.