When it comes to journalism, as Sturgill Simpson sings, some days you kill, and some days you choke; some days you blast off, and some days you just smoke. Well, last week we absolutely killed it, if I might say so myself.

To start off the week, we had a 3,000-word Reb Natale’s investigation into the app interoperability space, which I wrote about in last week’s column. Then, on Tuesday, Wei-Shen Wong and Jo Wright wrote 3,000 words about how exchanges are looking to disintermediate data vendors when it comes to auditing. I’ll discuss that story a bit later. And on Wednesday, Max Bowie handed in a 4,000-word story looking at consolidation in the ESG data vendor realm. I’ll hit on that in a minute.

But before I get to those stories, we also had three other excellent articles on the website for you: First, Josephine Gallagher spoke with Vanguard’s chief information officer for Europe to discuss the asset manager’s plans to centralize responsibilities from its UK and EU offices. Second, Jo Wright opined on how traditional data vendors are trying to create an ESG Holy Grail, which ties into what I write about below. Finally, Luke Clancy looked at some of the challenges facing quantum advancement.

Oh, and to start this week off, Max reports on Money.Net’s new owner after it went into bankruptcy.

Ok, enough recapping…let’s get to my dumb thoughts.

The power of ESG

If you’ll allow me, I’d like to go back to the eternal well of market data M&A once more. This time, though, I’m going to sprinkle in a drop of ESG.

As mentioned before, Max Bowie—who has been covering the world of market data for more than two decades—wrote 4,000-plus words about the consolidation that we’re seeing in the ESG data vendor space. To name but a few of those deals: Refinitiv added The Red Flag Group; S&P Global acquired Trucost and RobecoSam sustainability indexes; Moody’s took a majority investment in Four Twenty Seven; FactSet nabbed Truvalue Labs. Morningstar scooped up Sustainalytics; Six bought Orendan.

According to metrics provided by Burton-Taylor International Consulting, Refinitiv is the second largest market data provider behind Bloomberg. S&P is the third largest market data provider, Moody’s is the fourth largest, FactSet the fifth, Morningstar the sixth, and (like an Abbott and Costello routine) Six is ninth.

Now let’s take that information and combine it with this nugget from Max’s story: According to Bloomberg Intelligence, investments tied to ESG are expected to account for more than one-third of total global assets under management by 2025, reaching $53 trillion in value—and that’s a conservative estimate. The vendor arrived at those figures by assuming 15% growth rates between now and then—but that’s only half the pace at which ESG assets have grown over the past five years.

Investment firms and vendors are seeing these figures, and they’re suddenly realizing there’s A LOT of money on the table, and that they have to get savvier at incorporating ESG data.

If you think back to just two or three years ago, it was all the rage to be an ESG data aggregator—“What data do ya need? We got something for ya!” While standardized ratings are good, users now want data that easily connects to traditional datasets and other forms of alternative data. This means that vendors need to be the owners of the data, and not just aggregators.

Truvalue Labs launched about eight years ago, using AI to analyze ESG data. In October, FactSet, which operates the Open:FactSet Marketplace, bought the tech and data provider to bolster its ESG offering. As Hendrik Bartel, co-founder and CEO of Truvalue Labs, told Max, combining Truvalue’s AI-driven analytics on FactSet’s data will allow them to “provide new and unique insights that wouldn’t have been possible if we had remained independent.”

And more to the point of this column: “ESG is mainstream and has become an important factor in determining investments. It’s essential for FactSet to have our own data and move beyond being an ESG integrator.” Combining Truvalue’s data with FactSet’s sector, fundamentals, supply chain, industry classifications, people, and governance data, among other datasets, “will help clients embed ESG into every phase of the investment process.”

The core of Max’s 4,000-word story was this: While there are concerns that creating oligopolies in the ESG space is dangerous because that usually leads to price increases, for the time being, asset managers are happy with the consolidation we’re seeing. The arrangements allow the big market data providers to better integrate ESG data with vendors’ traditional data—essentially, once it gets into the hands of larger providers, they can shoehorn those ESG datasets into the taxonomies that they already use, thus, making it easier for a buy-side firms that want to get savvier about ESG quickly to do just that because they don’t have to do the hunting and combining themselves.

Three weeks ago I wrote about how M&A amongst market data providers is only going to heat up as we head into the summer, and two weeks ago I wrote about how it could be Big Tech providers like Amazon, Google, Microsoft, and IBM at the front of the line to nab these companies.

To build off of those two themes, though, ESG could have a major say in who gets bought and for how much. As noted before, the major market data providers have been very active in the ESG M&A market at a time when more money is flowing into ESG-backed investments. So one has to ask: Are these acquisitions being made not just to enhance the company’s ESG portfolio, but to make it a more enticing acquisition target? And furthermore, if you are a data provider looking to acquire another data provider, would you consider a company that’s weak on ESG?

Everyone I speak with on the subject of market data consolidation believes that there are going to be at least two or three major deals made over the next 12 months—but right now it’s all speculation. I think, though, that ESG is going to have outsized influence over how those deals transpire, should they happen. If you want to speculate wildly with me, hit me up: anthony.malakian@infopro-digital.com.

Can exchanges do it better?

As mentioned at the top, Wei-Shen Wong and Jo Wright teamed up to look at how exchanges are trying to get closer to their customers, in a bid to better understand how they use market data. This move, they write, may come at the expense of data vendors that are being gradually squeezed out of the exchange-client relationship. It’s a fantastic story—by far the most read from the past week—so if you haven’t already, I highly recommend that you check it out.

On one hand, it makes sense why operators like TMX Group in Toronto and the Australian Securities Exchange (ASX) are doing this—they want a more complete picture of how their clients use their data, both to improve the auditing process, and to have a closer connection to their users. On the other hand, I wonder if they have the staying power if internal costs start to rise.

First, though, let’s look back to the early 2000s. Back then, there was a move made by some of the largest exchanges to disintermediate the vendors when it came to direct feeds. Vendors had been providing consolidated feeds—and they still do—by collecting all the feeds from all the different exchanges around the globe.

Then, suddenly, the most popular exchanges decided to butt in, saying that they could offer lower latency at a time when the Race to Zero was at its peak, but they also did it simply because…they could. So they decided to sell their datafeeds direct to customers by saying, “You don’t need the Reuters feed with 180 different exchanges on it—why not just go to the core five venues that you use and get the feeds directly from them?”

And, as best as I can tell, that pitch has largely worked, even today.

Then again, I can’t help but wonder if this is a cyclical thing. Exchanges have been trying to work out their auditing practices for decades. Yes, they want a closer relationship with their clients, but once that becomes time consuming, labor intensive, and internal costs start to grow, they go back to the vendors and say, “Nah, y’all do this for us.”

On the mutant third hand, though, the exchanges are the ones now buying the vendors, so I guess it all comes home one way or another.

I don’t have a good gut feel for this end of the market, to be honest. If you think you can help me understand it better, send me a line: anthony.malakian@infopro-digital.com.

The photo at the top of the page is “A View from Moel Cynwich: Looking Over the Vale of Afon Mawddach and Toward Cader Idris” by William Turner, courtesy of the Cleveland Museum of Art’s open-access program.