ESG has placed companies within a “chaotic” new world of regulatory responsibility but getting sustainability right through data and technology will reward them and their investors with healthier bottom lines and larger returns.
That was the message that rang loud and clear from A-Team Group ESG Insight’s first expert-led ESG webinar of the year, held this week.
The webinar, entitled “ESG: A Growth Opportunity and a Regulatory Challenge” took an existential overview of the space at a critical point in its evolution, following a tumultuous year that saw the basic tenets of ESG challenged by war in Ukraine and when faith in its benefits were attacked by political snipers in the US.
With a panel of high-level data experts and asset managers, participants dwelt on the two most fundamental questions that will drive the sustainable investment data and tech sector into the future: what is the state of play within the regulatory sphere and can companies – and therefore investors – still profit from ESG?
New Rules on the Horizon
The regulatory landscape has toughened in the past year and is only going to get tougher, the panel said. Jurisdictions in the UK and the US have announced bold new rules and the European Union is adjusting existing laws. This, and the widening reach of oversight across the world is adding new challenges at an almost daily rate to financial institutions, especially those that operate in multiple geographies.
Monica Filkova, “climate and nature investment risk lead and chief investment officer at insurer Aviva told the webinar that coordination across boundaries is difficult for firms to manage. That becomes especially difficult when different jurisdictions are working to a variety of reporting standards.
Even if they do align there could still be difficulties. The most commonly used framework within proposed legislation around the world is that of the Taskforce for Climate-related Financial Disclosure (TCFD). The problem with this is that the TCFD is principles-based and not descriptive, meaning that it could be implemented in different ways across the globe.
That would require firms to be more rigorous in establishing what data is most relevant to them, a challenge in itself, the panel agreed.
Keeping Track, Staying Efficient
The fast-changing nature of ESG regulations was also highlighted as a new pain point by Daragh Tracey, “senior strategy manager at data management company Fenergo, who said some institutions were struggling to keep abreast of alterations to existing laws and codes even before they adopt new ones.
Sean Vickers, chief executive of management consultancy Aurora, made a similar point on the implementation of compliance processes for the new slate of regulations – and those that are due in the coming months and years. Incorporating those processes into firms’ workflows would take time and could be costly.
Vickers argued, however, that technology is already offering opportunities to streamline and automate the process, enabling firms to combine their ESG reporting with other regulatory compliance operations, such as KYC, with which sustainability reporting shares common traits.
He is convinced that RegTech products will emerge, enabling firms to move those processes away from third-party providers and into their own technology stacks.
Never Ending Story
ESG is still in its infancy and in a state of constant change as the global economy learns to accommodate this new way of thinking. The road will be bumpy but the long-term benefits to people and the planet are already apparent. So too are they apparent to business, argued Sean Taylor, intermediaries director, Canaccord Genuity Wealth Management. Taylor said that data would ultimately be the most effective weapon in winning the battle of doubts over the value of sustainable markets and ESG.
When companies can show that they are doing good for the world – showing that through data – then the rewards will be great in the form of higher profits for companies and better returns for investors. Being able to demonstrate, through data, that a company is “walking the walk and talking the talk” on ESG will be an “aphrodisiac” to investors and draw in more capital, Taylor said.
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