ESG stands for “the environmental, social and governance criteria that are used by investors and other stakeholders to assess a company’s impact, value and potential for investment, risk and opportunities,” says Claudia Hauser, worldwide capital markets solutions director for Microsoft Financial Services.
As these metrics gain prominence in investment analysis, risk management and decision-making processes and regulations, financial services organisations need to consider how best to compile them and how to embed them into operational processes.
“While there is no globally agreed definition of ESG nor global standard for its reporting, there are several frameworks and guidelines for companies to report their ESG performance,” says Hauser. “Some of the most widely used frameworks include the Global Reporting Initiative, the Sustainability Accounting Standards Board’s requirements and the Task Force on Climate-related Financial Disclosures. These provide guidance on how companies can measure and report their progress over time in a consistent and transparent manner.”
As the largest company in the world, with a market capital of more than $3 trillion, Microsoft has a strong commitment to sustainability and shares its progress with stakeholders and customers. It uses a variety of reporting metrics to measure its performance including carbon emissions, energy usage, water consumption, waste generation and employee diversity. A few years into its own journey, Microsoft is committed to helping its customers and partners to move towards a more sustainable future.
“Microsoft Cloud for Financial Services and Sustainability Data solutions on Microsoft Fabric help financial services firms to unify all their data, including ESG data, into a single lake-centric and open data estate for all their first and third-party data sources for a single source of truth,” says Hauser. “Users can then use AI-powered tools to manage and get intelligence from that data. For instance, they can use generative AI-based copilots to ‘chat’ with their data, or summarise ESG news articles and compare company statistics to create reports and presentations. They can also build intelligent ESG-specific AI models and tailor-made AI analytics from a unified data platform and democratise access to insights.”
In addition, Microsoft Cloud for Sustainability is a software as a service solution that enables organisations to record, report and reduce their emissions on their path to net zero. It provides capabilities and tools such as the Microsoft Sustainability Manager (MSM), which includes Copilot, a generative AI assistant, and intelligent insights to deliver actionable insights and deeper analysis of calculated emissions data. And the ESG Value Chain solution helps customers measure and improve their ESG performance across their value chain. It leverages MSM, Microsoft Power Platform and Azure to simplify data collection from suppliers and helps to manage ESG data from various sources and stakeholders in real time.
“One of the key challenges for businesses is to consolidate structured and unstructured data from internal and third-party sources into a unified data hub for ESG,” says Hauser. “Firms struggle to collect and keep track of data beyond their firm, especially Scope 3 data emissions that include all indirect emissions that occur in upstream and downstream activities of an organisation, which are difficult to manage, verify and control. The ESG Value Chain solution is important because it enables organisations to gather data directly from their value chain partners facilitating greater transparency and accountability to calculate their Scope 3 emissions.”
Collaboration to achieve ESG goals
“Microsoft, in collaboration with its partner ecosystem, is empowering financial services institutions on their path to net zero, leveraging a comprehensive data management estate combined with AI-powered analytics, enabling them to innovate with customer-facing solutions,” says Hauser.
Microsoft’s $1 billion Climate Innovation Fund supported Mitiga Solutions with the development of its Climate Risk Score platform, which measures ESG risk models for businesses. The platform, powered by Microsoft Azure, can assess the impact of climate change on firms and helps them comply with global climate regulations, with insights directly available in their customer relationship management systems, such as Microsoft Dynamics 365. The fund also supported Novata, which has helped US-based private equity firm Trivest to build an ESG programme that collects ESG metrics, and Hamilton Lane and Piper to streamline their ESG data collection for annual investor reports.
Additionally, as members of the Green Software Foundation, Microsoft worked with UBS and nonprofit WattTime to develop a Carbon Aware Software Development Kit (SDK). “This public toolset assists in building carbon-aware software and reduces software carbon intensity (SCI) by shifting applications to less energy-consuming time windows or locations,” says Hauser.
The Carbon Aware SDK works by measuring SCI across applications, devices and networks. UBS used the product to provide carbon-aware functionality for its Advanced Compute Quantum Analytics (ACQA) risk platform. The focus was on time-shifting workloads during a 24-hour window with the goal of processing them at times of lower carbon intensity in the grid.
Microsoft’s research demonstrated that the Carbon Aware SDK adoption has the potential to decrease the SCI by 15 per cent, a substantial contribution towards an organisation’s ESG target. Azure carbon optimisation, including breakdowns by different pivots like business divisions or locations, will allow organisations to align their cloud strategy with their sustainability goals and demonstrate leadership in reducing emissions.
Microsoft worked with UBS and WattTime to develop a Carbon Aware Software Development kit
Delivering responsible solutions
There is evidence that customers are leaning towards sustainable finance offerings. Over two thirds (67 per cent) of consumers want their bank or financial institution to become more sustainable, according to cloud banking platform Mambu’s Disruption Diaries: Green Banking report. Mambu surveyed over 6,000 consumers on their attitudes to sustainable finance and found that nearly half (48 per cent) want more access to green financial services.
“Consumers are increasingly demanding financial institutions to take a more proactive role in promoting sustainability and providing ESG solutions and investments according to their needs and purpose, especially for younger clients that are committed to sustainable practices, ethical behaviour and social responsibility,” says Hauser. “ESG creates opportunities for innovative solutions that attract and retain the consumer segment valuing these principles. The more competitive organisations will be those that deliver innovative ESG-focused services for their customers. For example, Microsoft’s customer Flowe is creating new business lines and attracting new clients to help consumers advance sustainability in their lives. It empowers customers by integrating education and transparency around ESG and personal health directly into its banking experience. Customers can automatically offset their carbon impact every month by planting trees in Guatemala via Microsoft’s AI platform that gives gentle nudges to customers to create more meaningful banking experiences. Plus, it's monitoring its own emissions with Microsoft sustainability dashboards.”
Similarly, Microsoft joined forces with Dutch financial services provider Rabobank to create an online, carbon removal unit marketplace that connects large corporations with smallholder farmers who can sequester carbon through agroforestry. The ability to sell carbon is made possible with an Azure Cloud-based platform developed by Rabobank. “One of the missions of the Rabobank-Microsoft partnership is to create a global and scalable AI- and machine learning-based platform that empowers farmers while also addressing the urgency of climate change,” adds Hauser.
By leveraging innovative technologies and strategic partnerships, Microsoft is paving the way for financial institutions not only to meet but even exceed their ESG objectives, create innovative sustainable solutions for their customers and encourage a future where sustainable finance is integral to global economic growth.
“No matter where an organisation is on its ESG journey, Microsoft and its partners can help to minimise their carbon footprint and enhance their ESG impact,” says Hauser. “The financial services industry, with its relatively small direct environment impacts, might seem distant from the ‘front lines’ of climate solutions, but it plays a critical role in helping the world transition to a better future.
Partner perspective
We asked Pragun Katyal, consultant at Infosys, how the organisation’s solutions leverage Microsoft technology to achieve ESG goals.
“Infosys’s expertise in the sustainability domain and technology capabilities can assist financial institutions in achieving their environmental goals without compromising on performance,” he said. “Infosys integrates technology into ESG practices via Microsoft Cloud for Sustainability, enhancing data input, analytics, collaboration, digitisation and incorporating AI to streamline what was once a manual and cumbersome process in many organisations. Leveraging Microsoft’s Power Platform, Power BI and Power Automate, Infosys has built EcoWatch, an ESG data capture and visualisation tool, and GreenFin, an ESG due diligence tool focusing on sustainable investment and lending, that enable financial institutions to translate their goals into reality.”
This article was originally published in the Spring 2024 issue of Technology Record. To get future issues delivered directly to your inbox, sign up for a free subscription.