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Do we need ‘ESG-as-a-service’?

Efforts to make businesses align with and champion today’s Environmental, Social and Governance (ESG) principles, frameworks and disclosures are a tremendous market focus at present, and an area also significantly bogged down in detail. But what if, to accelerate this tremendous trend for more sustainable approaches to business and investment, we look to technology to ease this complexity?

Currently, ESG process is a highly labour-intensive effort. Parameters vary wildly from one set of ESG criteria to another, and it can leave businesses repeating the same processes time and time again. Could an ‘ESG-as-a-service’ approach assist, not as something to replace people with technology, but to provide CTOs, CDOs, and CFOs with the right tools to make ESG achievements a reality? Could taking a technology-led stance to ESG requirements actually help to root its principles of true sustainability and environmental focus more firmly within business structures, rather than treating it as a box ticking exercise?

By way of example, eyes are firmly fixed on November this year as the UK hosts the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow. Ambitious goals are on the table, including global net-zero by the middle of the century – thanks to the phase-out of coal, more investment in renewables, and electric vehicles, to name a few.

Underpinning these goals is data. Governments, businesses and investors need an accurate and comprehensive data-driven picture to determine baselines, what achievable goals look like, and how progress can be measured in real-time.

However, ESG data remains a huge challenge. In February 2021, HM Treasury published the Kalifa Review of UK Fintech, highlighting the usual ESG difficulties of “differing data reporting standards, terminology and taxonomy requirements [which make it difficult to create comparable metrics], increasing volumes of non-standardised data, large data gaps”. This Review then recommended the creation of a centralised electronic register for ESG data.

Data silos and poor quality data; identifying data owners and sources; recency of information; and knowing the right sorts of company and supply chain data to include in ESG metrics all require a huge investment of time and expertise. Then, the data needs to be analysed, aligned, interpreted, and used to give an accurate picture of where a company is now, and forecast where it could be. But the needs don’t stop there.

The multiplication of ESG standards

ESG is also spurring the creation of new expectations on businesses from customers, shareholders, and governments. Addressing CFOs, global technology analyst firm Gartner says that “91% of banks monitor ESG, as well as 24 global credit ratings agencies, 71% of fixed income investors and over 90% of insurers.”

Alongside the rise and rise of ESG and the data challenges every company will face, are the number of sectorial, regional, supra-regional, governmental, rating agency, and investment fund standards, principles and frameworks – each with their own set of criteria and measurements.

For the UK’s thriving fintech start-up ecosystem, where founders look to raise funds and investors aim to maximise returns as well as carry out more ethical and impactful investments, ESG takes on additional importance.

And it’s not just start-ups that need to be ready. The British Government has stated its intention to introduce “mandatory reporting of climate-related financial information across the economy by 2025, with a significant portion of mandatory requirements in place by 2023.”

Listed commercial companies; UK-registered companies; banks and building societies; insurance companies; UK-authorised asset managers; life insurers and pension schemes will come under climate-related information disclosure requirements.

Companies need accurate, up-to-date data management to meet these requirements. However, a business may find itself trying to comply with one set of investor ESG metrics in order to raise funds, then later starting over to meet regulatory disclosures or legislative requirements for a regional office. The sheer volume of ESG metrics, plus huge volumes of company data, make this an extremely challenging, yet vital task to solve.

Data: Putting the ‘D’ into ESG

ESG initiatives cut across a company and require an understanding of how data requirements intersect. Like the ambitious COP26 goals, ESG progress is fundamentally a question of good data management by leaders and decision-makers.

It means the solution to current data and standard challenges can be found in relating a business’s own ESG data flows as technical data lineage. That’s best done by integrating and analysing a firm’s metadata (data that summarises information about data, making finding and working with data easier) with a cloud-based platform to work at scale, agility and pace.

This process can span from data source through processing to their destinations in the various disclosures and assessments, uncovering the lifecycle of data, using best-in-class filter and visualisation dashboards.

It means moving away from spreadsheets, data silos, and slide decks, to a platform like Solidatus that enables business leaders to take metadata and create, track and report on a company’s ESG initiatives in an agile way against relevant ESG standards and disclosures. And, as the pace of ESG accelerates, a cloud-based platform working to harness data lineage will allow businesses to model possible future states and assess their possible impact. It’s not a box ticking exercise, but still – tick, tick, tick.

ESG-as-a-service is a novel yet important addition to today’s technology ecosystem, which will benefit society, environment, and business alike. A ‘green evolution’ in how we manage data is a needed and useful companion as we strive towards a more sustainable future.

More than that, deploying technology to simply straighten out currently wasteful ESG processes will provide business efficiencies. It will free up organisational resource from a focus on just meeting benchmarks to thinking of how they can build on these environmental priorities. Instead of focusing on the specific and individual hurdles to be cleared through ESG rating, by placing their own data and processes at the core of assessment process, technology can help organisations to truly focus on making more sustainable steps forward, instead of being blinded by ESG complexity.  

 

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RegTech

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