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Corlytics, First Derivative Win Funding for ‘Groundbreaking’ ESG Taxonomy Project

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RegTech provider Corlytics and managed services group First Derivative have received funding to jointly develop an open-source ESG taxonomy mapping project.

The companies received a “reasonably considerable amount” from Irish advocacy group Sustainable Finance Ireland (SFI). The money will help build out what the companies describe as the world’s first open-source taxonomy tool.

Once compiled, the project will be handed to the open source community for streamlining. It will be updated every three months by SFI, a public body that supports the development of Ireland’s impact investment industry. The aim is for it to be accessible by any financial institution.

Corlytics’ Dublin-based Chief Executive John Byrne told ESG Insight that the idea was born of the need for an ESG compliance framework like those that exist for anti-money laundering and other regulations.

“There’s no rigour to the ESG process at the moment,” Byrne said. “We want to make it useful to the whole industry, so that they can actually start automating their processes.”

Market Obstacle

The proliferation of ESG taxonomies created by organisations such at the Taskforce on Climate-Related Financial Disclosures and the European Union’s own EU Taxonomy, is seen by some market participants as an obstacle to the further development of ESG investing. Without universally comparable datasets it is difficult for investors to make comparisons between corporates’ sustainability and corporate social responsibility records.

Financial institutions will be able to use the Corlytics-First Derivative framework to analytics and automated systems, the developers said.

“Our vision is game-changing, we have put open source at the centre of our strategy to help everyone better manage the transition, mitigate risk and work faster to achieve a net zero future,” said Johnny Mattimore, Managing Director and Global Head of Risk & Sustainable Finance at Newry, Northern Ireland-based First Derivative. “It showcases our unrivalled capabilities of bringing together people, data and technology into a single powerful solution.”

The EU taxonomy has come closest to providing an international framework, but the delay of the publication of the regulatory technical standards that will underpin it has caused concern and uncertainty among asset managers.

No Rival

Byrne said the Corlytics and First Derivative service was not intended as an alternative to any of the taxonomies already published. Instead it’s hoped the project will knit them together.

“It feels like there’s a new body appears every three months saying ‘we’re going to answer everybody’s prayers and build a perfect taxonomy for financial disclosures in, say, greenhouse gases’,” Byrne said.

“Our idea is to see how much overlap there is between them. It’s not necessarily that they don’t join up, but one may have a different set of limitations than another.”

He illustrates that point with reference to measurements of greenhouse gas emissions. While there are seven greenhouse gases, most taxonomies are only looking at carbon dioxide. Also, many look only at emissions and only some detail carbon intensity.

“There is no such thing really as a like for like comparison, there are similarities and differences everywhere,” he said.

For the time being the two companies will work on the project but once handed to the open source community, others are likely to get involved and help shape the framework. And as the nature of the ESG space changes, so will the taxonomy, Byrne said.

“We not creating something – we’re really reacting to what’s there, and then trying to join things up,” he said. “It’s all fine when ESG standards are conceptual, but sooner or later people are going to have to start generating reports on this.”

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