As demand for data grows with the acceptance of ESG as a critical part of financial institutions’ business and regulatory activities, focus will intensify on the quality of that information.
Asset managers and owners will want the cleanest, most relevant and most comprehensive datasets to identify investment opportunities and risks and to comply with the growing body of regulatory obligations. That’s being acutely felt in the Asia-Pacific (APAC) region, where developing economies are beginning to realise the benefits and moral responsibilities of sustainable finance, underpinned by proactive and innovative financial watchdogs.
One of the defining characteristics of the region’s recent financial development is the harnessing of technology by regulators to help build green markets, A-Team Group’s RegTech Summit APAC heard in Singapore. RegTech applications for ESG are being enthusiastically supported by regulators, particularly the Monetary Authority of Singapore and the Hong Kong Monetary Authority.
Such technology can be a powerful means of ensuring that the ESG data that reaches financial institutions is clean and enriched, Kalpana Seethepalli, director of ESG, Asia Pacific, for Deutsche Bank told the Summit’s “ESG and RegTech – building a winning partnership” panel discussion.
The benefits that RegTech offers sustainability data officers go beyond mere automation of processes; they also include a guarantee that the data will be seamlessly integrated into a financial institution’s broader data assets and can ensure that it is traceable and auditable.
Katie Carrasco agreed. The head of ESG at Global Innovation Fund, an impact investment vehicle said that RegTech could provide a firm with a 360-degree view of its ESG data, a matter that’s critical to good governance, which in turn is important in ensuring the accurate identification of opportunities and risks.
Data traceability and auditability will also provide for credibility, argued Mary Anne Bullock, global strategic account director for Solidatus. At a time when greenwashing is making headlines and undermining the ESG project, Bullock said that being able to trace data from source to use-case would help demonstrate its veracity, offer transparency into firms’ activities and build trust.
Building trust comes down to credible metrics, said Seethepalli, and that would come when auditability is added into the data management mix. When data can be verified independently, investors, regulators and consumers will really trust it, she said.
Bullock said this had had been among Solidatus’ thoughts in its support of the Open Source Sustainable Finance Taxonomy Project, which maps different sustainability reporting taxonomies. The tool, accessible from GitHub, provides an assurance lens that verifies the data on which it works, she said.
With greater trust, greater things can be done with data, and among those would be collaboration.
The panel agreed that collaborative data projects were likely to yield better and faster results. While the protection of intellectual property, anti-competitive practices and legal constraints would prevent the fullest cooperation between data users, vendors and other interested parties, the growth of the ESG and data spaces would incentivise collaboration.
For instance, said Carrasco, impact investors collaborate with each other and non-government organisations to help reduce the amount of due diligence they need to perform when considering a project or company for investment.
Other incentives were emerging too, said Seethepalli, including the sheer magnitude of the global effort needed to execute sustainability transitions, such as that to a net-zero economy: no single bank would be able to finance that alone, she said.
Looking ahead, the panel was optimistic that the data management piece within ESG would develop healthily. Reporting standards would coalesce to make corporates disclose of their ESG performance easier, while also enabling financial institutions to make better investment decisions and smooth compliance.
That would also make data sourcing easier, said moderator Helene Li, chief executive at GoImpact Capital Partners.
In the meantime, however, Seethepalli said there is lots of hard work and no quick fixes. The financial services industry cannot avoid the fact that doing ESG data management right – and it must be done right to work properly – will cost, but the effort will be worth it in the end, she said.
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