We don’t have time for everyone to build their own financial and non-financial data aggregation platforms in order to facilitate capital allocation. Open-source collaboration could be the answer.
At COP26 in Glasgow, I was invited to be the master of ceremonies for an event hosted by Federated Hermes’ Daniel Godfrey, and delivered by OS-Climate.
In a giant inflatable igloo on a carpark next to the main venue, Truman Semans, the founder of OS-Climate, explained his vision: a data commons in the cloud – based on open-source community principles – that will connect investors, investees and entire ecosystems
to the data and needed to facilitate capital allocation to green projects. This is what the planet and its inhabitants urgently need.
The following summary of the event’s proceedings aims to bring more shoulders to the wheel, avoid duplication and delay, and ultimately, deliver positive outcomes.
The day was divided into two parts: the why and the how.
Answering the call for high quality data
Fiona Reynolds, CEO of the Principles for Responsible Investment – which represents 4,000 signatories and 121 trillion in AUM – called for bold action from the public and private sectors to bring forward high quality data that is affordable for all.
Open-source luminaries, Jim Whitehurst, senior advisor and former president of IBM, and Jim Zemlin, executive director of the Linux Foundation, explained the many successes of the open-source community in cracking seemingly insurmountable problems – from
vaccine creation to flight management controls for airliners, and beyond. Projects, products, and profit can all be served in creating a flywheel of collaboration. If we work like the Swiss (neutral and like clockwork) we can bring competitors, users, and
providers of data together to address the ‘pre-competitive’ layer of technology and standards, avoid reinvention, and free up resources to rapidly innovate.
Sarah Bloom Raskin, former United States deputy secretary of the treasury, along with a panel comprised of Meryam Omi, Legal & General investment management, Fabio Natalucci, International Monetary Fund, and Bob Litterman, Kepos Capital, spoke of turning
conviction into conduct, and how the biggest risk is inaction. All agreed that verifiable data is needed to build and maintain trust in green investing.
The correct pricing of risk across multiple scenarios, uses cases and value chains, meanwhile, will require massive aggregation of asynchronous data. Forward looking data that is geo-specific and temporal will lead to a huge catalogue of data sources. If
we are to build portfolios that serve the universe of equities and debt, and the diversity of investor types, we must know who this data is from, how it got there, and how it is going to be used.
Offering comparability and reliability
In the first of the technical sessions, the data commons was introduced as a self-service data exchange with common governance, by Thomas Kirchherr, IDS. Joined by Vincent Caldeira, CTO, Redhat, Kirchherr went on to explain that the data commons needs to
be highly available, as well as offer comparability and reliability. Data will be treated like code with versioning, and a single layer of security acting as a mesh. Amazon’s Ana Pinheiro, S&P Global’s Laurent Smart, Red Hat’s Michael Tiemann, Allianz’s Christian
Meydnt, and KPMG’s Ashlyn Belding joined a discussion during which panellists offered the services of their respective companies to bridge to other data providers, identify assets and legal entities, data governance and onboarding.
Enabling capital allocation
Switching gears to the demands of business, a panel of financial services executives, including representatives of BNY Mellon and BNP Paribas, joined Airbus and RedHat to explore the challenges they are having in sourcing reliable scope three data. They
also spoke of their ambition, that in working with OS climate, they will be able to ingest, normalise and scale to address the data and knowledge gaps that currently exist.
Of course, all this data is being provided to enable capital allocation. The session on tools for portfolio allocation was eagerly anticipated. Portfolio alignment is key to transition and divestment decisions, and must be based on dynamic, forward-looking,
transparent and science-based data.
Generation Investment Management’s David Blood opened the session with a clear statement: he saw the OS climate initiative as one of the most important activities in this area. He sees two key themes:
1) Net-zero carbon budget is an allocation issue – away from polluters; and
2) Portfolio alignment is needed to support transitions before divestment.
Leyla Javadova of Allianz demonstrated an Implied Temperature Reporting (ITR) tool, with analysis of target sectors such as oil and gas, automotive, steel and electricity generation. Aligned to various TPI’s, projections were made by scenario, taking company
emissions into account, and calculating estimated temperature overshoots versus targets and trajectories.
To Do: Address the lack of correlation
Blood then moderated a panel with Jared Westheim, Goldman Sachs; Giresh Narula, Urgentum; Jaako Kooroshy, FTSE Russell; Maarten Vieeschhouwer, 2 Degrees Investing Initiative; and Margaret Kuhlow, WWF.
The lack of correlation between ESG data providers was cited as one of the reasons ITR portfolio reporting tools were preferred, as they greatly simplify analysis and allocation, while retaining the necessary complexity behind the scenes. The WWF has long
campaigned for mandatory corporate disclosure, and therefore welcomed the UK government’s announcement at COP26. Kooroshy made it clear that we are in an age of convergence with common data, tools and reporting to evidence deviation versus commitments.
Blood asked each panellist for their ‘To-Do’ list for 2022. Responses ranged from the credibility of data, policy in making Task Force on Climate-Related Financial Disclosures (TCFD) mandatory, and a taxation on carbon. Narula needed supply chain emissions
data; Vieeschhouwer portfolio alignment and tracing over time; Westheim work on tracking positive solutions; Kooroshy targets.
Addressing climate risk: Institution-wide transparency
During the next session on physical risk, Matt Sandoe, climate risk lead, BNP Paribas, helped define physical risk, and the challenges of creating a common language for transparency across financial services institutions. A demonstration looking at hazards,
assets and power companies with probability-based vulnerability distributions – based on the Oasis Loss modelling framework – highlighted the ambition of OS-Climate to provide a ‘plug-and-play’ approach, incorporating models from the likes of Jupiter, WRI
and more. The commercial software companies, meanwhile, made it clear they wanted to be involved as they need to focus on their core competencies, while providing complimentary services.
A team from Airbus demonstrated an exciting initiative around transition scenario analysis. Member of the board of management, Allianz SE, Gunther Thallinger was the penultimate presentation –calling for capital markets to address climate risk in the way
it had addressed financial risk, while ensuring it is auditable.
It was clear that public and private finance need to work together to deliver bold actions. All COP26 participants agreed that gathering data and discerning the meaning from that data to deliver actions is a struggle. An open-source collaboration which brings
the best of breed together on a common platform, such as OS-Climate, was widely supported and clearly has significant momentum behind it.