By Olivier Menard, Head of the Green & Sustainable Hub, Asia Pacific & Dr. Cédric Merle, Head of Center of Expertise Innovation.
With heightened global attention, tighter regulations and sophisticated reporting requirements on ESG topics, financial institutions and corporates must urgently beef-up their data capacities, with emphasis on sanity and consistency checks as well as analytics.
Not only can data enhance how organizations advise and deliver for clients, but it can also serve as a means to help mitigate ESG related risk factors in their activities.
While this seems fairly straightforward, at present there are a number of hurdles:
- Despite convergence efforts, there is no wordlwide common taxonomy to align definitions between industries and markets, the risk of a patchwork of discrepant requirements causing headaches to global actors is real;
- While there is a glut of communication and marketing, information suitable for investing or lending decision purposes is scarce and fraught with quality and reliability shortcomings
- Many market participants succumb to the sirens of “IA” and “big data” while losing sight of their actual needs and end-uses, ESG data mis-selling must be tackled
- Data is almost always backwards looking, with too long time-intervals and lags, while market attention is shifting to forward-looking performances, ability to track attributable changes, and ability to opine on commitments and claims credibility
- Data disaggregation is absolutely fundamental, sustainable finance needs information breakdown per geographies and type of stakeholders, for greater targeting and accountability.
As financial advisors, we aim to provide our clients with the best advice, while at the same time avoiding risk and controversy.
When it comes to ESG, this means that as an organization, you must have a strong capacity to collect and understand relevant data – which, when taking into account the factors above, is easier said than done.
You need a clear approach, to comply with regulation, and to be aligned with relevant principles in the market – without which there could be significant impact not only to your client and yourself in terms of reputation, financials, but it could impact market sentiment more broadly, which would be detrimental to progress. And of course, there are legal implications – which are significantly increasing.
With the increase of regulations, there is a push towards data standardization and harmonization, which will make it much easier to report, analyse and understand data from different sources in the future. Clearly, it is only a matter of time before we begin to see positive, tangible changes.
At Natixis CIB, our Green Weighting Factor assesses the environmental impact of all the financing that we provide to our clients. To learn more about our green & sustainable finance offering, visit: GSH Natixis CIB
