This is an excerpt from Finextra’s report, 'The Future of ESGTech 2023'.

The unprecedented risks of climate change and the rise of conscious consumerism in the post-pandemic era have prompted industry stakeholders and policymakers to acknowledge the importance and impact of ESG practices and policies. This has driven a notable shift in mindset across the financial services industry who need to respond with both strategy and action to serve two of their primary stakeholders: their regulators and customers.

Banks are working diligently to improve their ESG posture to respond to the pressures, for example, publishing voluntary ESG disclosure reports, including ESG focused due diligence on their supply chain. In turn, there has been an explosion in firms delivering ESG solutions they hope can satisfy the needs of the financial services industry as they seek to understand exposures and mitigate where appropriate.

Fintechs can play a pivotal role in accelerating the implementation of ESG policies in large financial services institutions. Fintech organisations are efficient, consumer-centric, responsive and well positioned to manage and drive impact qualitatively and quantitatively. Products and services that are oriented toward ESG use real-time data, rating engines, inclusion initiatives and measurement tools to:

• Incorporate ESG solutions into investment analysis and the decision-making processes
• Seek appropriate ESG reporting and disclosures
• Enable carbon footprints, across scope 1-3, to be understood and quantified
• Promote the acceptance and implementation of good ESG principles within the financial industry effectively

Partnerships between financial institutions and third-party technology providers ensure the best possible outcome is delivered to the end user by enhancing financial institutions' technical capabilities and capacity.

Leveraging networks to forge partnerships to solve problems both for business units and society has become a recognised way of working.

However, for the financial services buyer of these services, this raises a host of new questions. Who do we partner with? How do we know the solution can deliver what we need? Can the solution scale to support us? What are the dependencies, both on the input and output so we can integrate the solution into our processes?

Answering these questions for new technology implementation has been the role of the CTO’s office for decades. Unfortunately, experience has not made the task easier. The regulatory burden and security challenge has grown markedly, and understandably, in the last two decades. Despite their best intentions, CTOs can still spend nine-18 months identifying and evaluating a fit-for-purpose solution.

The onboarding processes and compliance requirements are often costly and incredibly time-consuming for both financial institutions and fintech firms. At Fintech Week London, NayaOne CEO Karan Jain noted that effective evaluation of third-party technology requires stakeholders who partner quickly, experiment at pace and ideally explore more than one solution. This is mutually beneficial for the financial services companies and the technology providers and serves the end customers by shortening the time to market.

One way to deliver this rapid experimentation is through sandboxes. These are secure, off-estate, technology environments to run experiments. Firms can bring a range of technology suppliers to evaluate using synthetic or open-source data. Exploring and testing in this way typically identifies a preferred solution in 90% less time and at 80% less cost of existing proof of concept processes.

The technical evaluation that takes place in a digital sandbox, supported by ESG data enables a financial institution to not only evaluate multiple tech providers focused on the specific use case but to select the solution most suitable for their technology environment. This enables the financial institution to develop an ESG strategy that optimises both business processes and customer experience.

NayaOne offers a comprehensive platform for clients seeking to improve their ESG posture. Firstly, an ESG marketplace with pre-vetted climate tech providers available for the client to explore. The technology delivering these solutions is available through the NayaOne gateway – meaning a single connection to NayaOne gives access to all suppliers. ESG datasets, both synthetic and publicly available, are available in the Data Marketplace and these can be exposed to the technology suppliers in the sandboxes where clients run their experiments. This end-to-end service aids rapid experimentation, evaluation benchmarking, and the launch of sustainability propositions to customers.

In June 2022, the UK Digital Sandbox powered by NayaOne, was used for the FCA and City of London’s sustainability cohort. Start-ups and mid-sized firms engaged APIs and ESG datasets to solve use cases related to consumer understanding, and the transparency, disclosure, or validation of ESG data.

The end of cohort report concluded that “continued access to the digital sandbox’s platform and services, particularly the data assets, would generate significant benefits for participants” validating both the complexity of ESG solution exploration and emphasising the need for a digital sandbox and ESG data.

The use case below demonstrates how fintechs with related capabilities can be brought together in a sandbox to present an end-to-end solution benefitting both the business process and the end user.

Use cases

The use-case: A bank wants to offer a new product to their commercial customers. As their trusted bank, they want to support customers in their journey to carbon neutral.

The bank has concluded that the high carbon areas their customers struggle to understand across all three scopes of emissions are:

1. Their employees' company card spending,
2. Their cloud use,
3. Their travel, and
4. Their hardware.

The customers then need to reliably offset all the carbon output.

This means that the solution must be end-to-end, using open banking payments data, customer behaviour, and carbon offsets.

To help with this the bank creates a solution combining Meninga, Climatiq, Ditch Carbon and Lune:

Before building their new solution, the bank will need to access open banking and scenario based data, this is provided by NayaOne within the digital sandbox environment.

• Meniga’s solution is used to calculate the carbon emissions resulting from the transactions of the company card.
• Climatiq’s solution calculates carbon emissions from their cloud use and travel.
• Ditch Carbon calculates the carbon emissions associated with the company’s hardware.
• Finally, all the emitted carbon will be summed, and the offset identified with Lune.

The ability to stitch together multiple technology providers enables a financial institution to accelerate product build using third-party and evaluate how these solutions can co-exist with existing technologies to enhance and optimise the business process or user experience.

This use case demonstrates that through partnerships at every stage of the value chain a bank is able to stitch these to deliver a robust ESG solution directly to the end-user. Therefore, emphasising the power of partnerships between financial services institutions and technology providers.