ElysianNxt, a provider of real-time solutions for finance and risk, has developed an ESG reporting platform designed to provide a 360-degree view of the impact of ESG on risk metrics, built using the latest technologies and techniques, and able to accelerate regulatory reporting to real time.
The platform won the award for Most Innovative ESG Regulatory Reporting Solution in A-Group’s highly regarded Innovation Awards 2022. To find out more about it, we talked to Matthias Coessens, ElysianNxt’s managing director for Europe, about why and how the solution was created, the technologies involved, and the benefits it can deliver. Matthias also reviews a use case of the solution and considers next-steps development.
A-Team: Why did ElysianNxt decide to innovate an ESG regulatory reporting solution?
Matthias: The needs of financial firms are changing and the market is not set up for what they really need. Five years ago, when ElysianNxt was founded, regulatory reporting solutions were built using static processing for compliance. These solutions are still being used, with firms filing regulatory reports at fixed intervals, but they are no longer viable in a regulatory environment requiring real-time, on demand reporting.
In terms of ESG, financial institutions need to rethink their technology infrastructure as regulators are including climate stress tests in their assessment of the stability of financial markets. Adapting traditional stress tests to climate-related risks raises challenges: climate risks will materialise over a long-term horizon, requiring more calculation and forecasting power; and there are huge volumes of potential scenarios to consider. Banks need a 360-degree view of the impact of ESG on risk metrics.
A-Team: What sparked the company’s interest in ESG reporting?
Matthias: ElysianNxt’s early work was a response to the 2008 financial crisis. Then there was interest in climate change and ESG, then the Covid pandemic. Things were piling up and we learnt that you cannot look at risks in isolation.
In the case of an ESG stress test, it should show the impact of all risks to a bank. This sparked a rethink of how to define a scenario and run it across all risks a bank is exposed to. This is a challenge for banks that have different risks such as liquidity, market or credit risk scattered across departments.
A-Team: How did ElysianNxt approach the challenge?
Matthias: Our approach was to develop a fully integrated finance and risk platform built with the latest technology and enabling regulatory compliance in real time. We needed to achieve fast, high volume and easy ‘what if’ calculations, so we looked beyond banking at the tools and architectures used by social media giants such as Google, Netflix and Facebook to process vast amounts of data in near real time.
We also looked at how we could leverage cloud options while also providing a solution that could be used by customers wanting to run software on premise.
A-Team: What technologies and techniques did ElysianNxt use to develop the ESG regulatory reporting solution?
Matthias: We used data streaming, modern architecture, microservices, cloud and containerisation. Data streaming allows contracts moving through a pipeline to be processed in parallel whatever stage they are at. Microservices deployed at every stage carry out necessary calculations, and are grouped in containers for cloud deployment.
These technologies are changing the world of risk management. The emerging operating model will look very different to today’s: data from source systems will be fed into risk systems daily and in real time; risk professionals will run regulatory metrics in minutes and instantly review results; models and assumptions will be updated on demand; and stress tests and simulations will run in minutes.
A-Team: What makes the solution innovative?
Matthias: ElysianNxt offers three aspects of innovation and differentiation. The technology provides high speed calculation allowing an ESG impact report that would traditionally take 24 hours to process to be complete in just 30 minutes.
The solution also includes a no code approach to the user experience, making it intuitive for users to execute stress tests without calling IT.
Finally, microservices solve the problems of monolithic risk solutions that are complex and time consuming to change by being enablers of change. As regulators’ understanding of ESG stress testing changes, the microservices architecture can be adapted quickly to meet the needs of its users.
A-Team: What benefits does the ESG solution deliver?
Matthias: A wide range of risk scenarios are required to fulfil ESG reporting. The ElysianNxt solution offers the speed and flexibility to manage a large range and volume of scenarios, simulations and performance metrics, and deliver fast outcomes.
Short-term, it is relatively straight forward to run climate stress tests to understand physical risks. Longer-term, it is more difficult. Depending on ESG strategy, we can help banks understand 10 to 20 year risk horizons.
A-Team: Please tell us about an ElysianNxt use case
Matthias: A large Tier 1 client started working with ElysianNxt on credit risk and expected credit losses. This was a regulatory solution. The client saw added value in the platform beyond regulatory compliance, and used it internally to build a framework for financial risks, run stress testing on its full portfolio, and better understand capital requirements.
ESG scenarios have an impact on credit risk, so the client is looking at how it can measure the risk ahead of further ESG legislation. It is also planning to expand use of the platform to other types of risk, allowing it to combine different risk elements, change parameters, and immediately see the impact on ESG risk and reporting.
A-Team: How will ElysianNxt further develop its award-winning ESG solution?
Matthias: Our next focus is on the challenges of longer-term horizons and providing more capability for dynamic balance sheet modelling. We are developing a framework incorporating business strategies that will not only allow a bank to measure climate change and its consequences for the bank, but also forecast risks over a long period of time and how bank strategies can change these risks.
The immediate concern is short-term ESG risk. Going forward, banks will consider three-year timelines and will later want to look at 20 to 30 year horizons. ElysianNxt will help them with these transitions.
A-Team: What does winning the A-Team Group award for most innovative ESG regulatory reporting solution mean to ElysianNxt?
Matthias: ElysianNxt is a young FinTech company bringing something entirely new to the market. The award will help us with name recognition, raise our profile, prompt questions about our innovation and solution, and encourage more firms to get to know us, try the platform, and recognise that we are doing something very different around ESG reporting.
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