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Fenergo Brings KYC Processes to the aid of ESG Reporting

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Fenergo has released a software-as-a-service regulatory and risk product designed to bring smaller businesses within the reach of ESG reporting frameworks, potentially closing gaps in supply chain sustainability data.

Two years in the making, the Dublin-based company’s latest product will provide its financial clients with the infrastructure to gather and compile sustainability data in a process similar to its know your customer (KYC) and client lifecycle management (CLM) information. The data can then be incorporated into regulatory filings and risk management processes, and used in portfolio construction.

The Fenergo service views ESG as analogous to KYC, requiring screening in order to take a risk-based approach to the onboarding of entities or assets that pose a sustainability risk in the same way that onboarding questionable clients might present a legal and reputational risk. In doing so, it is hoped to help financial institutions extend their data-gathering efforts to the furthest reaches of their supply chains, capturing information on smaller companies that are less likely to have the ability or inclination to report on their ESG performance.

“That’s where the real rigour and efficiency comes into play with regards to the deep dive analysis,” Fenergo director of ESG and regulatory compliance Edel Brophy tells ESG Insight.

Supply chain ESG risks are a growing concern for financial institutions, especially as regulators begin to demand the disclosure of Scope 3 emissions. The European Union’s Sustainable Finance Disclosure Regulation (SFDR) will be extended in January to Level 2 reporting and will require firms to declare their impact on a range of environmental and social measures as well as other data-related disclosures.

Tick-box Document

Without the data to provide those declarations, financial institutions may find themselves in breach of regulations or censured by investors for transparency failings. With that risk hanging over them, Brophy expects firms will make greater efforts to reach out to their investee companies to begin the process of onboarding their own suppliers’ ESG details.

“Organisations are really only wrapping their arms around this now,” says Brophy, citing SFDR and its associated Corporate Sustainability Reporting Directive (CSRD), which will apply to smaller companies. “In terms of institutions that are out there, particularly small to medium enterprises, that captures a huge amount of entities that will be liable now in terms of recording and disclosing that sort of information.”

Fenergo’s service is designed to make it easier for clients to know what information they need to include when making regulatory reports and also how to get it. It generates a tick-box document that lists all the key touch points that regulators and investors will want.

Built around the methodology of the Taskforce for Climate-related Financial Reporting (TCFD), the reporting tool is expected to satisfy demands of regulators not only in Europe, but also in other jurisdictions, such as the US and UK, where regulations are being formulated around the framework.

By taking a one-stop-shop approach to ESG and KYC, Brophy says Fenergo will bring efficiencies to clients. “If our clients are screening for KYC it makes sense that they screen for ESG at the same time,” she says. “There is a cross utilisation of the process.”

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