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ESG Information Overreach May be New Data Challenge

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ESG data management is evolving, with more datasets coming online as new sustainability and social factors are incorporated into financial institutions’ risk-assessment processes.

In response, firms may be tempted to invest greater amounts of capital to bring in those new streams of potentially critical information. But some could be over-reaching the capabilities of their operations.

David Carlin, climate risk and TCFD head at the United Nations Environment Programme Finance Initiative, warned that some financial institutions are more focused on data collection than integrating the insights of that data into their decision-making processes.

“What’s really key is having actionable information and having decision-useful information,” Carlin told ESG Insight. “We talk a lot about what data is needed but fundamentally we should be starting not asking if we can get all the data that is out there, which is vast, but instead ask what use cases are necessary, what decisions are informed and what information do we need to make those decisions?”

The challenges of ESG data management will form the thrust of a panel discussion at A-Team Group’s second annual ESG Data and Tech Summit London, which will be held on May 11. Carlin will be among the speakers on the panel, which will also comprise Gianluca Cantalupi, global head of sustainability and climate risk at Credit Suisse; Monica Filkova, head of climate and nature investment risk, chief investment officer at Aviva; Andy Ruocco, head of data and analytics, climate at NatWest; and, Milo Sjardin, group head of climate analytics at HSBC.

Data and Tech Summit

The panel discussion will be part of a full day of presentations from leading data experts within the financial services, data and technology sectors. Other discussion points will include regulatory change within ESG, the hidden risks of a complex investment space, a close look at SFDR and managing biodiversity risk.

With more than US$50 trillion estimated to be invested in sustainable markets by the middle of the decade, financial institutions need to ensure their workflows and processes are optimised to take advantage of the opportunities that will emerge. While data quality is improving, the ESG space is still beset with weaknesses in the form of incomplete datasets.

Carlin said that the work of the integrated reporting organisation the International Sustainability Standards Board (ISSB) would be crucial in bringing order to the disjointed ESG data space.

“One of the things that really hinders the efficient flow of data is the lack of standardisation and comparability and this is where I think the elements of mandatory disclosure, the work of the ISSB, are going to really help matters,” he said.

The ISSB, which was formed at COP26 in Glasgow in 2021, plans to release its reporting guidelines in climate and sustainability in June. The framework is hoped to set a benchmark for global reporting procedures on ESG.

New Solutions

Many data and technology companies are offering climate risk solutions. While their objective is to help investors identify how a changing climate is likely to affect the companies in which hey invest or the projects that they find through green bond markets. But they can also show where there are opportunities for investing in risk mitigation projects and technologies.

One of the key ingredients of building these models is geo-spatial data, which enables investors to pin climate impact geographically and identify which companies’ operations or assets are in the most at-risk areas.

However, Carlin said that work was still needed on these models because at the moment most of them only capture information on primary risks – those that will directly affect an asset. He looks forward to models that can identify indirect, secondary impacts. He illustrates his point with the example of a flood zone in which a company’s property is undamaged but its employees are unable to get to work.

“Does that have a negative impact on your business? It very well might. But this is where I think financial institutions are not necessarily being savvy enough when it comes to the data provision,” he said.

  • There’s still time to register for the A-Team Group ESG Data and Tech Summit London next week. Click here to sign up.
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