FEATURE Increasing financial inclusion is just one small part of the industry’s broader environmental, social and governance (ESG) efforts. While banks and insurance firms are not the heaviest users of environmental assets themselves, according to the World Economic Forum, they do finance projects and companies that are. “Financial services firms sit at a unique intersection of ESG because they have their internal operational metrics, as every company does, but they also provide capital or insure projects and assets for other companies,” says Matthew Sekol, sustainability global black belt at Microsoft. “As a result, they have a broad value chain that they can have varying levels of influence over. We’ve seen a mix of regulatory pushes globally from a disclosure perspective, and also governments building programmes to support a sustainable transition, often involving partnerships with lenders.” Any company approaching an ESG initiative should first focus on the ESG factors that are most relevant and impactful to their business, stakeholders and industry. For financial services firms, this could mean prioritising areas such as climate risk and sustainable investing, diversity, equity and inclusion, and regulatory compliance. Once these priorities have been established, the focus can then switch to what the data says about those areas. “The firm must lead with how their functions intersect with ESG topics to help identify risks and opportunities, otherwise they may find themselves in over their heads on efforts they cannot sustain,” explains Sekol. “The starting point for use cases is the data, yet we can’t be so mired in it that we don’t act,” says Sekol. “Data is critical to making an informed decision and ESG represents new data points that firms may be unfamiliar with. When used to drive a compelling use case, data is the proof to trace through to success.” Financial services providers might interpret data differently depending on their unique risks and opportunities. “A bank may plan for a percentage of loans to be aligned with a sustainable transition, meaning the metrics would be found in the lending portfolio and may collect borrower data like financed projects’ goals rather than internal metrics,” says Sekol. “For insurance, they may not be as focused on operational reductions and instead want to ensure that the companies and communities they support are building in climate resilience and adaptation planning. The data points here would be acute and chronic climate risk and adaptation efforts that can be taken, rather than mitigation efforts. Across the whole financial services industry though, the data to showcase ESG efforts will largely come from the credit or investment vehicles used but be supported by metrics outside of the company.” Measuring growth is a key step towards sustainability goals, risk management and opportunity creation. But much of the material data that banks are working with will come from outside their company. “Data, technical debt and a complex but necessary regulatory environment are some of the challenges that surface when a bank attempts to integrate something new like an ESG data set and perspective,” says Sekol. “Historically, these challenges have been met with point solutions like purpose-built data lakes. For example, an ESG analyst would ask for access to the loan book, a data lake would be created with just the information needed, 80 Photo: UN Photo/Cia Pak Financial inclusion can be a “catalyst” for seven of the 17 United Nations Sustainable Development Goals “ Financial inclusion is a critical part of every institution’s strategy” PETER HAZOU, MICROSOFT
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