How low-code can help financial services businesses to lead the way on ESG
By Rick Browne, Appian Regional Vice President, Financial Services for APJ
Like all businesses, financial institutions face increasing consumer, investor, and employee pressure to make environmental, social and governance (ESG) considerations central to their business model.
This is a trend that financial institutions can’t afford to ignore: ESG fund assets under management reached $357 billion in 2021, up from $236 billion at the end of 2020. And ESG investments could become a $1 trillion category could become a $1 trillion category by 2030.
In the USA, 79 per cent of individual investors and 99 per cent of millennial investors are interested in sustainable investing. Almost half (49 per cent) of investors say a lack of robust ESG data is holding back their organisation’s adoption of ESG according to a new survey of more than 1,000 investors across 16 countries.
In October, a new study by PWC found that nearly 9 in 10 institutional investors believe that asset managers should be more proactive in developing ESG investment products. However, fewer than half (45%) were planning to launch new ESG funds.
Conscious of the weight that ESG holds in consumers’ decision-making, financial services organisations are stepping up their ESG tracking and reporting to ensure they can be as transparent as possible.
In its report, How financial services can use ESG initiatives to help build a brighter future for all, Deloitte said, “Financial services executives should move beyond the current view of ESG and think strategically about how their companies can respond. Today, the industry has an opportunity to leverage innovative technology and explore new partnerships to address major societal issues, make new markets, and generate profit in collaboration with multiple stakeholder communities while proactively rebuilding trust in institutions.”
What is ESG?
Environmental, social, and governance (ESG) is a framework used by businesses, investors, and consumers to determine how conscious an entity is in relation to those three concepts.
The term refers to corporate-level initiatives used to minimise negative impacts on the environment, ensure sound social practices, and comply with regulatory requirements.
Eighty-eight per cent of publicly traded companies have ESG initiatives in place, followed by 79 per cent of companies backed by private equity and venture capital and 67 per cent of privately-owned companies.
Environmental considerations
The environmental component of ESG encourages businesses to pay attention to their environmental impact, including the resources they consume, their contribution to pollution levels, and their efforts to combat climate change. Examples may include working toward carbon neutrality/carbon emission reduction, investment in renewable energy, and corporate investment in green initiatives.
Social considerations
The social component of ESG accounts for how a company manages its relationship with employees, suppliers, customers, and the communities where it operates—and the policies that affect them. Social considerations include ensuring ethical working conditions, providing ample employee benefits and fair salary structures, and investing in diversity and inclusion initiatives.
Governance considerations
Governance efforts focus on organisational business ethics, regulatory compliance, leadership compensation, audits, internal controls, board makeup, and shareholder transparency and rights.
Challenges to creating an ESG strategy
Creating and implementing ESG practices is a complex undertaking. Some of the challenges businesses face include:
ESG regulations vary
There is no global standard for ESG, and compliance requirements are often different depending on the region in which a company is located. Because regulations affect many parts of a business, transparent, streamlined processes become crucial for maintaining compliance. The ever-evolving nature of ESG regulations means data inputs for tracking and reporting need to be as clean and easily accessible as possible.
ESG data is siloed
Because ESG has many moving parts and spans the entire enterprise, it’s no surprise that ESG data is both complicated and plentiful. Making matters worse is the fact that many businesses use decades-old systems to house ESG data, and many of these systems don’t communicate with each other, so data is dispersed and difficult to find. Nearly a quarter (24 per cent) of companies say that corporate silos are a barrier to ESG progress.
ESG workflows aren’t optimised
Updating spreadsheets, maintaining documents, and holding discussions via email may eventually get the job done, but manual processes certainly don’t set a business up for success. Especially as regulations change frequently and organisations need to pivot. Manual ESG processes also hinder auditability since actions aren’t tracked or logged in a standardised location. This approach is not scalable.
Transparency is essential
Transparency in ESG progress is important for internal and external stakeholders. Data should be visible and easily accessible. Sharing ESG measurements with stakeholders helps support audits, meet governance and compliance, improve ratings, and escalate issues while maintaining data security.
