The ESG/SRI research needs are growing and so are the cost pressures. To get more in less is on the rise. Specialized and value added ESG research is needed to take investing decisions for many investors who are genuinely inclined to make an impact through investigation or generate alpha. Therefore, it is important for buy-side and sell-side to re-think their research processes and costs. Finding a competent external research partner that can help them scale their research coverage and uncover niche investment themes at a competitive price, can really be one strategic move.
Small buy-side and sell-side companies can start by looking at what their larger peers did more than a decade back – engage with the right external research partners to bring scale and efficiency into their research functions.
Advantages of outsourcing ESG research processes:
1. Expand research coverage without investing in additional fixed cost, increasing head count and thereby increasing administrative time in on-boarding and managing;
2. Access to experienced analysts and teams at competitive prices;
3. Own analyst freed-up time to focus on outreach, new product ideas, and client development;
4. Benefit from best practices in the research process gained over the years;
And many more!
However, partnering with an external partner for research needs could seem new to many and the idea may seem daunting move. The companies may feel restricted for the following reasons:
1. Reliability of research output: Ensuring quality of the research could be difficult when conducted by an external research partner. It is dependent on various factors like, training, motivation, stability, etc. of the external research team.
2. Data privacy: Any mishandling of the data might have serious consequences for the companies. Two types of data are at risk here:
a. Non- public data collected from and about the firms that are part of the research process; and
b. Intellectual property of the company itself, such as methodology, new product development etc.
3. Coordination between the internal and external teams: Partners across geographical borders come with cultural barriers, language barriers, time difference, etc. Coordination may seem difficult and may increase administrative burden.
4. Skill set: A constant check on the skill set of the external team is difficult. This could directly impact the quality of the research.
5. Impact on employee morale: The internal teams could fear as it may negatively impact them when complex processes are given to an external research firm and they could become redundant. The impact on employee morale is an important risk and must be managed well.
Amidst so many fears, surprisingly, there are very few failure stories of externalizing research processes. Some of the big names in the industry have been leveraging this model successfully for many years now overcoming these challenges. While there is no “one size fits all” approach to these issues, some of the issues can be addressed by taking the following measures:
1. Identifying the strategic intent of the organisation and accordingly establishing the performance metrics to track the performance of the research partner. Quality check process can be defined by the organisation to ensure dependable results.
2. Defining Service Level Agreements (SLAs) can help in tracking and managing the operational efficiencies and quality.
3. Data privacy management: To ensure technological infrastructure and data are well protected, the information technology department must be involved from the beginning. They will also ensure that use of the data and applications is done by the research partners as was contractually agreed.
4. Phased engagement: Management of research process could be done in phases with complex processes/projects being externalized only after satisfactory experience of simpler processes/projects. This will also ease the barriers of culture, language, and time difference.
5. Internal team motivation: Clear separation of responsibilities between external and internal team is important. This will ensure that the company does not lose important talent from its own team. A walk-through of their role in maintaining the relationship with the external team and in delivering the final product will keep them motivated.
The above measures can smoothen the experience of externalising the research process. However, the first step remains believing in the system.
While there are challenges, the established benefits of such a set up are plenty. An improved access to large pool of skilled and experienced professional will not only provide competitive advantage to the organisation but also help get better research results at lower costs. With a positive and open mindset, companies can leverage all such benefits.
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