Through next generation ESG data platforms, the finance industry can play a central role in sustainability linked investment services, risk management, and reporting.
The banking and finance industry faces big challenges to setting and achieving ESG goals. With so many stakeholders involved with investment and lending systems, we have arrived at a critical moment in being prepared for the demands of the coming decade.
In the regulatory sphere, legislators are strengthening laws, frameworks and disclosure expectations. APRA, ASIC, and AUSTRAC are all moving to be more prescriptive in their expectations of board and senior management responsibility for managing non-financial risks, including climate change. The ACCC is moving to prioritise action against companies that attempt to greenwash their reputations without real action to back up ESG claims, while ASIC has ‘green-hushing’ in its sights.
In public, consumers are increasingly demanding action from not only the companies they buy goods and services from. They want financial institutions to make ethical choices and demand action from the organisations they make investment and lending agreements with.
It’s not enough to simply promise you’re taking action if you don’t have the proof to back it up. And the proof lies in data. To be able to make informed decisions, the finance industry must invest in data systems and demand the same from partners. The complexity of reporting will grow into the future – particularly as the demands of Scope 3 arrive, requiring integration of third-party data points as well as delivering the same to clients. But to enable robust and transparent ESG to achieve sustainably outcomes, investment in data strategy, data governance and data platforms is crucial.
Across four key areas, we see important ESG opportunities for banks and financial institutions to explore as part of embracing sustainability in the future of business success. Each holds great potential for the industry but also important challenges when it comes to managing the data requirements to operate in a measurable and transparent way.
ESG Investing
Global markets are preparing for the securitisation of carbon and “green” cash flows produced by solar, wind, and battery technology. With many stakeholders involved in the green transition – boards, investors, partners, customers, staff, and lenders – the need to share information on green performance efficiently and securely increases. Collaboration with each stakeholder and understanding the insights they require is key. This will be one of the primary areas where investment in shared data platforms and exploring tools like smart contracts will be vital.
To succeed here, the industry needs to develop new products that are clearly targeted at financing the Net Zero transition, as well as to establish ESG scoring processes to define the sustainability value of one project over another.
Lending
Sustainability-linked loans and bonds provide funding options to businesses seeking to deliver on ESG strategies. Increasingly we will see new products launching from new financial infrastructure that prices, issues, and services lending facilities. Data solutions and operational frameworks can deliver these innovations frictionlessly to clients, accelerating their green transformation.
This requires clear ESG risk assessment processes, ESG covenants to penalise missed targets, and new Know Your Customer ESG scoring. All place demands pre, during, and post the lending window on having clear data processes tracking granular insights on a constant basis.
ESG Reporting
The growing demand for insight from clients, stakeholders, and regulators is driving a new class of information services. Consumers and regulators will continue to demand greater transparency and more granular sustainability data. Implement streamlined data processes – prioritising accessibility for relevant stakeholders to drive decision-making.
The banking industry can play a central role in this reporting framework. Financial data is in our DNA, and expanding this capacity to offering services across scenario modelling, audit, compliance, metrics and performance can offer all stakeholders tremendous value – whether as a new service or as a value add.
Pricing & Risk
Protecting the green assets contributing to the next wave of economic expansion is increasingly important. The need to create accurate, accessible and trustworthy ESG data is critical to success. Establishing “golden data sets” through data governance and assurance is critical to the integrity of pricing and risk models. These data sets will feed new modelling systems, risk management tools and improve the quality of ESG policies and processes.
Data supports every success story
Across all four areas, it will be important to enable data to move securely and freely through the financial ecosystem if we are to accelerate ESG initiatives across Australia & New Zealand. We must standardise on data formats, metrics and methodologies to ensure investors and stakeholders can make informed decisions, and to feel the data they see is accurate and comparable across industries.
Momentum is building, and we are seeing business and banking come together to get this right – with clear benefits. We see Coles link $1.3 billion in refinancing to sustainability targets, replacing half of its existing bank-financed debt. The Western Australian government has raised $1.9 billion for green bonds, allocating capital for Government projects specifically geared toward decarbonisation and sustainability outcomes. And Orica has converted $1.3 billion of existing bank debt into Sustainability Linked Loans.
At Orica, Cognizant has delivered a groundbreaking data platform to give it real-time emissions measurement insights to ensure it meets its targets. The system also provides additional benefits, including enhanced capacity to respond to potential problems with immediacy and to alleviate manual reporting processes to allow its experts to focus on strategy instead of basic administration.
Through our ESG Data Accelerator program, Cognizant can quickly demonstrate how much value is waiting to be unlocked through robust ESG data strategy and platforms. Data is the road forward for achieving the standards we need to reduce carbon emissions. Taking the first step will drive momentum toward success.
