18th June 2021: Environmental, Social and Governance (ESG) considerations have accelerated in the last few years from a niche preoccupation to a mainstream concern for banks and financial service providers. In fact, they are becoming an integral part of the future success of the financial services industry.
The force for change is coming from many different stakeholders– Governmental, fiscal, customers, and investors.
The European Commission is actively encouraging banks to redirect capital flow in favour of combating climate change, and the Sustainable Finance Disclosure Act, which came into effect on 10th March 2021, is putting on pressure for real demonstrable operational and process change. Likewise, the UK Government’s Green Finance Strategy aims to drive the transition to a green financial system and mobilise investment in clean and resilient growth.
Banks and financial service providers are also facing pressure from the general public. Customers, brands and investors expect them to take the lead, by implementing the UN’s Sustainability Development Goals, and the targets set out by the Paris Agreement to substantially reduce greenhouse gas emissions. As well as tackling fundamental societal issues such as gender and race equality issues and social and economic inclusivity. They’re demanding more accountability, more transparency, and expect their banking and financial service providers to use the power of money to create positive change, with ESG right at the core.
82% of respondents to a recent Artesian banking sustainability survey agreed that ESG is a key issue for future growth and profitability in the financial services sector.
The metrics that matter
Incorporating ESG metrics into an investment, product and service development, due diligence and KYS decision making is no longer seen as ‘doing good’, but instead as an important way to mitigate risks, protect reputations, improve customer perceptions, and generate long term growth.
ESG is therefore fast becoming the next major step in the application of fintech to solve some of the financial service industry’s most complex and high-value challenges.
In highlighting the value of data-led solutions in financial services, the recent Kalifa Review of UK Fintech pointed out:
“ESG is a relatively new area of financial regulation which gives rise to the need to obtain and process substantial amounts of data typically from different sources. Fintech has an important role to play, as relevant ESG data can be collected and processed efficiently using technology solutions.”
The ESG data problem
69% of ESG investors say investing according to ESG principles has helped manage volatility and downside risk. A further 56% of investors now cite ESG metrics as a way of generating outperformance. Covid-19 highlighted the importance of incorporating ESG principles into investment decisions. Socially responsible funds were more resilient during the pandemic, outperforming by up to 3% in Q2 2020. And yet according to a recent survey, only 30% of institutional investors have separate ESG investment teams to carry out this function.
Most financial service providers still don’t have a centralised ability to collect and analyse ESG data. Why? Because ESG data takes many forms and can be found in many places (internal, external, structured and unstructured), it’s highly dynamic making it hard to keep up let alone analyse and react, and finally, because ESG data is big data and analysing it is a huge undertaking.
But collaboration with fintechs holds the solution to the ESG data problem…
Why collaboration with fintechs is so vital to ESG transformation
Fintechs are no longer intruders or competitors in the banking and financial service market. Instead, they are invaluable collaboration partners when banks and financial service providers have new goals to reach or new challenges to overcome.
Thanks to automation, AI, data analytics and machine learning the ESG impacts of an organisation can be captured and analysed from a vast range of sources at once – news feeds, sustainability reports, accounts and so on – meaning that banks and financial service providers can quickly evaluate ESG related risks and opportunities:
- Prospecting – Grow new business by identifying sustainable sectors and organisations that meet ESG criteria
- Due diligence, KYS and Onboarding – effectively determine and measure the ESG footprint of companies
- Green finance – identify green and sustainable projects and companies for new investment opportunities
- Product and service development – respond to consumer demand for sustainability-driven investment products
- Stay ahead of regulatory and compliance requirements – monitor and respond quickly to regulatory and reporting changes
In 2020 Triodos Bank deployed a holistic relationship management platform designed to support ethical organisations (businesses that provide real impact on society or the environment) in partnership with Artesian.
“Triodos Bank has a mission to make money work for positive change. We do this by financing businesses and organisations that are making a lasting positive impact on society, culture, or the environment. Our team of relationship managers pride themselves in understanding the challenges that their customers face and work hard to provide them with flexible and individualised support. Using the Artesian platform gives them the information that they need at their fingertips: from helping to highlight customer success to flagging changes taking place in specific sectors.”
Connecting the ESG dots with Artesian
Artesian provides instant access to sector news, which can be focussed on key topics such as pollution, for example. This provides a rich selection of market news stories that can be used to inform customer engagements and trigger meaningful conversations.
Artesian provides the following tips, such as an ability to receive alerts from the Environment Agency, which in turn could trigger new business opportunities or uncover potential risks.
By applying Artesian’s taxonomy of 2,250+ topic filters to a list of target companies, banks and financial service organisations can receive highly relevant, accurate and refined ESG insights that can be used to personalise messaging, improve client engagement, or generate content ideas. With natural language processing and machine automation, this can be done at scale across an entire client book, giving users the ability to intimately understand their customer’s world, sustainability risks and opportunities, and use this to provide a better service through tailored solutions that both assist the transition and fund the future.
Get in touch today to find out how Artesian is already helping banks and financial organisations spot ESG risks and opportunities, channel their activities and sales behaviours to lead from the front and harness the ESG intelligence needed to invest in the transition, innovate, educate and fund the future.