Despite a perception that ESG is in retreat around the world, financial institutions continue to take the issue very seriously as a matter of risk management, a trend that continues to exert an influence on the data demands of organisations.
It isn’t even the compliance imperatives of organisations operating in heavily regulated parts of the world that continues to drive their ESG policies – it’s more a question of preparing for the worst impacts that a warming climate can inflict on assets and economies.
The continuing climate vigilance of institutions was among the top-line themes of the keynote fireside chat at A-Team Group ESG Data and Tech Summit London this year. Barrie Ingman, Legal Counsel – Head of Regulatory Developments at Mizuho was interviewed by Priyanka Harkness, Group Head of ESG Regulation, Chief Sustainability Office at Deutsche Bank took to the stage to open proceedings with a discussion that scanned the regulatory and legal landscape of sustainability investing.
The two leaders in their field focussed their conversation on ESG practices at a time when policy makers in the US and even in the European Union are scaling back measures aimed at stimulating sustainable finance.
Climate Vigilance
The discussion noted that while capital markets participants may no longer be under the same legal constraints to direct capital towards sustainable assets and projects, their fiduciary and risk management obligations means they can’t ignore the global megatrend that had prompted the implementation of rules in the first place – the threats to the environment and society from global warming.
To illustrate the point, the discussion alighted on a recent decision by Norges Bank to intensify its commitments to green investments. It was also noted that around US$30 trillion had been committed to ESG-linked assets and projects.
With economies and assets under threat from sever weather events, social disorder and geological stress, market participants are no longer looking at the their ESG strategies with a “let’s make the world wonderful” view; instead they are reading it with a “let’s manage the risk” lens, the summit heard. Consequently, those organisations are still working hard to find the right data sources and build the right architectures to accommodate these shifts.
The Best Route?
The debate suggested that regulations may not even be the best way to stimulate investment into sustainable finance. It was noted that the US, instead of toughening rules, had directed $738 billion of Federal money to clean energy projects, which has helped incentivise more investment in those sectors. In contrast, where the UK and the EU’s tough regulatory approach has produced a more unstable market for ESG-focussed investment, returns are lower and industry profits smaller.
The discussion included observations that British Prime Minister Kier Starmer and the EU Commission may have recognised this and had decided to pare their own regulations. Starmer’s intention was signalled by a willingness to drop diversity, equality and inclusion measures, and the EU’s readiness is evinced in its Omnibus proposal, which would see key sustainability regulations reduced in scope and scale.
The patchwork quilt of regulations around the world, coupled with the lack of clarity on which regulations would be kept by major western economies, had added another layer of uncertainty and complexity to investors, making it challenging for them to manage their compliance processes, which has an impact on their data and technology plans.
It was mentioned in the discussion that this state of limbo felt by compliance teams had rendered the regulatory landscape “a dog’s breakfast”, a reference to its messiness; it lacks clarity and there is an absence of any sense of direction.
Data Waste
It’s likely that data provisioning that had been sought at great expense now won’t be needed, and vice versa. As organisations in the US and US have been “ramping up for a similar set of rules” there is now “fragmentation” of their data needs and that’s a new challenge.
The discussion closed with a look at how focus on the sustainability space was evolving to one that is transition-centred and how that was likely to require less data. Where the move from fossil fuels to renewables is progressing at pace are countries including Japan, Singapore and, to a lesser extent, China, where the most polluting industries have bee identified and targeted for transition. In these places, there has been a shift away from achieving goals through regulatory guidance and more through fixed directives – a trend that could be replicated elsewhere.
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