How Buy-Side Funds Can Use CSA Budgets to Access Advanced ESG Research

The buy-side research scene has been shifting as regulations like MiFID II in Europe changed how research is paid for. With updated guidelines, asset managers are turning to commission-sharing arrangements, or CSAs, which allow them to set aside part of their trading commission budget to cover research costs. This may seem technical, but CSAs offer a new way to fund insight-rich ESG research that supports stronger investment decisions.

Using CSA funds to back up ESG strategies turns a regulatory task into a valuable advantage. Asset managers can use these budgets to dive deeper into climate risk, supply chain compliance, and a company's carbon profile. The result is not just compliance, but data-driven, responsible investment planning that better supports long-term outcomes.

CSAs give asset managers the chance to reshape their research portfolios. As ESG concerns rise across various industries, having budgets dedicated to reliable external data is becoming more necessary. Leveraging CSAs with intention may be the key to building a more proactive, resilient investment framework.

Identifying ESG Knowledge Gaps for Strategic Investment Decisions

For buy-side funds, ESG data is more than just a support tool. It helps guide portfolio direction, ensures risks are properly flagged, and reveals both challenges and opportunities in a way that traditional financial metrics might miss. The first step is identifying the ESG gaps your team can’t cover in-house.

1. Assess Climate Risk Exposures

Climate risk remains a top area of concern for long-term investors. Knowing which assets are vulnerable to extreme weather, new emissions regulations, or shifts in energy demand is necessary for mitigating future losses. Analyzing these risks may require highly specialized data about regions, industries, or emissions policies. This type of research can be funded directly through CSA budgets.

2. Screen Supply Chains for Compliance Issues

Complex supply chains make it difficult for funds to confirm ESG alignment. Labor violations, illegal sourcing practices, and lax safety oversight can present risk exposure. With new disclosure rules coming into play, advanced supply chain monitoring—especially through third-party research—can help reveal red flags early on.

3. Utilize Carbon Footprint Modeling

Every company has a carbon footprint, but not all of them track or report it thoroughly. Using CSA funds, investment teams can access research or models that estimate emissions, including Scope 1, 2, and even Scope 3. Knowing how a company affects the environment is increasingly central to good governance and sustainability analysis.

Once gaps are identified, a clearer direction emerges. This allows funds to focus spending on data that fills their blind spots and deepens their ESG understanding.

Selecting the Right ESG Research Vendors

A wide range of ESG vendors now offer tools tailored to energy, transportation, manufacturing, and many other sectors. Selecting reliable partners is just as important as deciding where to spend your CSA budget. Not all research tools offer the same quality, depth, or relevance. Separating the useful from the flashy requires time and clear goals.

1. Exploring AI-Powered Analysis Tools

Specialized ESG firms are using artificial intelligence to turn raw data into practical insights. For example, satellite images can be analyzed to review energy activity, forest loss, or mining conditions. These tools generate consistent updates and allow teams to respond faster to new risks.

2. Evaluating NLP Services for Social Data

Natural Language Processing (NLP) tools focus on less-structured data like customer reviews, worker feedback, and public sentiment on social media. This level of insight is especially useful for assessing the social side of ESG—issues like employee treatment or brand reputation that rarely appear in standard reports.

3. Aggregating Global Sustainability Disclosures

Different regions and industries have different requirements on ESG reporting. Some vendors specialize in pulling company disclosures from around the world and consolidating them into easy-to-reference formats. This saves time and ensures a consistent data basis for comparison.

Hiring specialized firms not only fills knowledge gaps but often leads to unique insights that can set one fund apart from others.

Structuring CSA Agreements for Optimal ESG Research Benefits

Having a solid plan is only the beginning. To truly get value from ESG-focused research using CSA funds, the agreements with brokers and third parties must be clearly developed. That means aligning the language in your contracts with your research goals.

1. Ensuring CSA Contracts Explicitly Cover ESG Content

Make sure your CSA contract states that ESG research is included in the services being paid for. This limits confusion and gives your team confidence that the spending matches your investment strategy.

2. Collaborating with Brokers for Sector-Specific ESG Analysis

Many brokers provide targeted ESG research within industries they already cover. By working closely with them, funds can receive insights that are both relevant and grounded in current market realities. This can be especially helpful for energy, utilities, food production, and retail sectors.

3. Engaging Independent ESG Research Firms

Another route is to use CSA funding to work directly with independent ESG researchers. These firms often specialize in single areas and can provide detailed custom reports suited to your fund’s focus. Whether it's regional climate risk studies or assessments of corporate governance structure, specialized insight offers more than general ratings.

Laying out expectations early improves the relationship between fund and research provider, and ensures the data delivered can actually support portfolio decisions.

Leveraging CSA Budgets for Enhanced ESG Intelligence

CSA budgets open the door to more advanced tools that would otherwise fall outside regular research plans. When structured properly, they give asset managers a clearer map of both opportunity and risk.

1. Subscribing to AI-Driven Sustainability Data Feeds

These feeds bring continuous updates about changing environmental conditions, emissions trends, or resource consumption. Unlike one-time reports, they offer ongoing visibility and allow teams to act early based on updated developments.

2. Integrating Alternative Data for Advanced Analysis

Some of the most valuable ESG insights come from unusual sources. This might include data on supplier diversity, social trends, or political stability in regions where your portfolio companies operate. By equipping your analysts with these inputs, CSA budgets become a force multiplier.

3. Centralizing ESG Research Costs for Compliance and Efficiency

When ESG costs are spread across various accounts without transparency, compliance reporting becomes harder. CSA agreements help pull all ESG-related expenses into a single process, simplifying audits and showing accountability. It also makes it easier when revisiting budget allocation over time.

CSA budgets offer more than just a way to pay for outside research. Used wisely, they become tools for deeper ESG investment processes that can adapt as new risks and opportunities appear on the radar.

Turning Research Costs into Strategic Value

CSA arrangements are making a comeback, giving asset managers another lever to use in driving value for their clients. Instead of treating ESG research as an afterthought, leading buy-side firms have started using CSA dollars to fund smart partnerships with AI vendors, social data platforms, and sustainability experts.

This approach allows them to go beyond compliance checkboxes. By feeding better insights into investment models, teams can articulate the "why" behind decisions with more clarity and precision. Whether it's keeping up with climate trends or identifying high-risk supply chains, the added knowledge prepares teams to be more forward-looking.

CSA budgets aren't just a line item. They're a way to bake smarter decision-making into the everyday research process. When used thoughtfully, they give firms the flexibility to dig into the ESG factors that matter most—and to keep refining their edge as the market changes.

Looking to level up your research strategy? CSA budgets give you a smart way to fund insights that matter. By investing in high-quality ESG reports, your team can uncover smarter ways to manage risk, align with long-term goals, and make sustainability a real part of the investment process. ESG AI is here to help you make every research dollar count.