ESG Data for Financial Services in an Operational Environment

Over the past decade, the financial services industry has made great leaps in supporting the ESG agenda, with arguably the most traction resting on the ‘E’ - the environmental aspect. The environmental goals of regulators and clients have increasingly been converging and becoming ever more ambitious. ESG Data in this context presents significant potential, but the increasing weight of regulatory activity poses a challenge for multinational financial entities and success will hinge on integrating ESG data into core operations rather than maintaining separate systems.

At this year’s Operations, Post-Trade, Technology and Innovation Conference (OPTIC),  AFME published a joint report with Protiviti on ESG Data, focusing on the operational implications from these ever increasing ambitions. During our panel discussion on ESG Data at OPTIC, with representation from both industry and regulators,  an emphasis was placed on the current need for a significant shift in ESG reporting. Moving forward, financial entities must harness the potential of ESG Data by shifting away from a “tick-box” compliance mindset to embedding these pools of information into their wider products and services.

Regulatory determination has led to reservoirs of ESG Data

The plethora of regulatory intervention in the ESG space is well documented, including in AFME’s 2023 report on the regulatory state of play of Sustainable Finance in Europe. Such regulatory activity includes work to develop a global baseline for sustainability reporting through the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS) under the EU Corporate Sustainability Reporting Directive (CSRD), alongside other initiatives such as the Financial Stability Board’s Task Force on Climate-Related Disclosures (TCFD), Global Reporting Initiative (GRI), and Taskforce on Nature-related Financial Disclosures (TNFD).

The result from regulatory intervention is the creation of reservoirs of ESG intelligence, both internally and externally facing. The management of this data throughout its lifecycle is explored in more depth in our latest report, but ensuring that appropriate data operations (DataOps) are in place is a foundational key to the success of a data-driven enterprise. It is also critical for tackling the main challenges facing financial entities in meeting regulatory expectations:

New technologies can help enable financial entities in unlocking maximum value from their ESG Data

At OPTIC, it was evident that when participants were asked about the opportunities for innovative technologies, data consistently emerged as the primary focus. This included not just ESG Data, but other fields such as KYC (Know Your Customer) and other anti-money laundering (AML) checks. Nevertheless, it is ESG Data which arguably presents businesses with the most commercial of opportunities.

Client expectations and the demand for sustainable finance products and investments are ever growing, but it is financial entities capable of leveraging the data already at their fingertips that will secure a competitive advantage. This was one of the take-away points from the launch of our report. OPTIC attendees heard how investment banks and financial market infrastructure are striving to lead the way by showcasing both their own ESG credentials and assisting clients in navigating the risks of greenwashing.

Cloud computing and AI/ML are already seen to be mature technological innovations, which are enabling firms to smartly make use of mass volumes of data. Computation and ML algorithms allow analysis and integration at scale, while cloud  platforms provide flexibility and cost-effectiveness, especially for storing and processing of high-quality data.

What happens next?

ESG Data is without doubt a significant area of growth, with plenty of potential. Yet, the weight of regulatory activity, and potential for further action have reached a point where they risk overwhelming even major multinational financial entities. Future success depends on embedding ESG Data as part of a financial entity’s core operations, rather than establishing and maintaining separate or parallel systems and databases.

At AFME we will be continuing to follow the developments in regulation and working with financial entities on how to operationalise ESG data which could otherwise sit unleveraged. To ensure that laudable ambitions remain sustainable and achievable, it is critical that industry and regulators work closely together.   

AFME’s Technology &Operations team remains on hand to discuss any of these issues in further depth, or to provide an update on the organisation’s activity in this field. Please contact [email protected]  or {Protiviti} for further information.