Financial services firms want to move away from woolly environmental, social and governance (ESG) goals and mission statements toward robust strategic plans that embed into their business. But hitting clear, bold ESG targets is costly, time-consuming, and wrought with risk and complexity. A huge range of technologies have become available to help and these will drive more sustainable models as firms gradually overcome the many challenges involved.
How can technology can make firms more sustainable?
Take the example of net-zero CO2 emission targets. According to a report by Boston Global Consulting, the combination of process automation, carbon data transparency, circular product or service design, and data ecosystems can help firms reduce emissions by 45% to 70%. There are already well-developed cases of this in financial services.
Technology can help financial firms achieve their social goals too. It was critical in helping society get through the pandemic with adoption of digital services and remote working tools. Technology helps firms to achieve goals such as financial inclusion, with numerous examples worldwide of data ecosystems such as open banking supporting wider access to financial products.
Challenges aligning ESG goals with technology
Whilst there have been achievements, significant challenges remain. Firms must work hard on technology governance to ensure their algorithms and robots are culturally sensitive and do not discriminate against any customer segments; and that they avoid unethical use of data. With increased dependency on the internet, the risk of cyberattacks keeps growing making cybersecurity ever more important.
Another challenge is how to handle the ever-growing amount of e-waste - discarded electrical products, which can be environmental and human health hazards if not disposed of properly. There is also concern about the high-energy use of AI and other technologies.
Plus, there is the obstacle of execution and delivery. Technology has great potential, but research by Accenture found that many organisations lack the practices, systems, and processes to deliver sustainable impact
Reporting challenges
To embed ESG into risk and governance frameworks, companies need a better understanding of their ESG exposures through clearly reportable and executable metrics and targets. Most financial firms are not advanced in this area.
ESG reporting frameworks are fragmented and ESG determining factors are complicated and changeable. Existing market solutions are slow to use live information. This leaves firms susceptible to mislabelling investments and reputational damage.
There is a lack of robust and appropriate data too. For example, to give a full picture of climate risk, firms need to measure emissions from their supply chain. But there are often not enough data sources to allow a complete analysis.
What impact can ESG technology have on the future financial services?
Pioneers are responding to these challenges. For them, robust cybersecurity and governance frameworks have become standard.
But they are going further. Cloud infrastructures are helping them save huge amounts of energy and CO2 compared to on-site solutions. Many large providers are moving towards 100% clean energy server hubs, for example.
Progressive companies are also combining these cloud capabilities with large open-source data sets and analytics to fill data gaps - helping them map risks and track long-term targets such as reducing emissions. The cloud will help firms access and manage the increasing volumes of climate-related data available, enabling them to scale their risk modelling quickly.
Better data storage and analytics will combine with these aspects to improve decisions based on a better understanding of factors such as climate risks. Pioneers are also turning to machine learning and artificial intelligence to provide more tailored and dynamic ESG analysis. This enables a more proactive ESG strategy, helping you stay ahead of negative press, benchmark against peers, and ensure the long-term sustainability of your business.
How Delta Capita can help
Delta Capita offers ESG Consulting and Technology Services that provide insight, capacity and expertise to help companies maintain their commitment to the global sustainability objectives in the height of a crisis and its financial challenges.
To find out more about Delta Capita’s Structured Products offerings or Sustainable Finance Consulting Services, contact us today.
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