ESG has become an integral, complex part of financial institutions’ workflows, making it crucial that they get their data and technology provisions right. But in this fast-changing part of the data ecosystem, what constitutes “right” isn’t easy to define.
At A-Team Group’s second ESG Data and Tech Summit London last week, leading practitioners from the data and financial sides of the sector pondered some of the most pressing questions about meeting the data and technology challenges of ESG.
What would an ideal ESG infrastructure setup look like?
There is no one-size fits all approach to setting up a firm’s ESG data and tech stack, Antonio Martinez, field CTO financial Services at cloud data services firm Snowflake told the “Modernising Data Infrastructure to Enable Accessible ESG Data and Analytics Insights” panel at the Summit.
While Martinez cited the recent example of a bank that had managed to begin using data just four hours after signing the vendor service contract, he said this was unusual but illustrated how improvements are being made all the time to streamlining firms’ ESG processes.
Sam Livingstone, CFA, head of data science and data engineering at Jupiter Asset Management said he would caution any company getting on the ESG tech ladder to avoid relying on any single platform. Being beholden to one tech stack would be “inhibiting”, Livingstone told the panel, adding that having the freedom to choose would provide the best technological bedrock for the future.
The legacy infrastructure conundrum
It’s regularly stated that legacy tech systems are unlikely to be able to cope with the demands placed on them by the ballooning needs of ESG. The panel, however, suggested that decisions on revamping or replacing existing infrastructure and architectures should be made once the enterprise has established what data it needs.
Ankit Jain, managing director, head of corporate and investment banking domain solutions at SoftServe said firms should first define what framework they would work to and then look at the sort of data they’d need to run on it. What’s most important, he said, is that firms have the capability to take the huge amounts of ESG data available and convert it into meaningful, actionable information.
The novelty of ESG is such that it presents far fewer legacy issues than more established financial data needs, said Elisabeth Seep, head of sustainable investing products at Rimes. Rimes advises its clients that they need to build maximum flexibility into their tech stack decisions because the ESG space is changing so quickly that their infrastructure needs will require frequent upgrades.
Architecture considerations in building ESG data platforms
ESG data is so different to financial data that it needs its own tailored architecture. The variety of data formats and the paucity of some data as well as quality and governance difficulties are among the factors that any technology build-out plan must take into consideration before its establishment, the panel agreed.
Seep said that firms needed to match their tech to the particular type of data they need for their individual use cases. Of utmost importance, she noted, was the ability to link ESG data with financial entities and instruments. To do that, the data needs to be properly mastered and managed, she said.
For many firms, the pressure to accommodate the demands of their clients may lead them to overreach, cautioned Livingstone. Instead, data managers should look instead to make credible and meaningful steps that show they are moving towards those targets.
The benefits of getting ESG right and costs of not
As pressure from regulators, investors and consumers increases, the benefits of implementing a coherent ESG tech programme and the costs of failing to do so have intensified.
On the plus side, it will enable capital markets participants to see better returns as the insights they gain from their data shows them where best to allocate their money.
A properly functioning ESG data setup will provide the evidence that’s needed for firms to prove to investors that they are striving to meet their ESG goals and enable them to meet their regulatory obligations.
However, on the flip side, an inability to demonstrate those metrics exposes companies to a host of risks, the worst of which argued Jain, is reputational damage. A good name tattered will have potentially deeper and longer-lasting consequences than the impact of regulatory and legal risks that may also present themselves, he said.
Livingstone countered, however, that small failings could be harmless. In fact, he argued, they could provide a long-term benefit for companies just beginning their ESG journey; by learning from small mistakes early on, they can avoid larger more costly errors further down the road.
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