Insights Blog

Why data is the cornerstone of ESG reporting in financial services

Legacy systems and a lack of investment is holding financial institutions back when it comes to ESG (Environmental, Social, Governance) reporting and sustainability efforts. Helena Schwenk, VP Chief Data & Analytics Office at Exasol, explains more.

ESG has become a hot topic within finance. Environmental concerns and events like COP26 have highlighted the need for green finance, with great expectations placed on financial institutions to align their investments and lending with net zero goals.

Pressure is mounting from diverse stakeholders, including investors, customers, regulators, the supply chain and the public. Those in the financial space must prove their commitments are being met – and they’ll need data to navigate this successfully.

At the same time, governments are demanding improved performance and reporting on ESG issues. So, how can financial institutions leverage data to remain compliant and on the right side of public opinion?

The pressure for ESG reporting

Legal requirements around sustainability arise from a range of new regulations, where organizations are obligated to report on environmental efforts. For example, the EU introduced plans for its Corporate Sustainability Reporting Directive (CSRD), a new standard where up to 50,000 larger public interest organizations will be expected to produce ESG reporting, in addition to all companies listed on EU regulated markets.

These new measures act in addition to requirements for the financial sector to disclose ESG measures under the Sustainable Finance Disclosure Regulation (SFDR). These include disclosures on sustainability risks arising from investments, and providing sustainability related information on all products.

Dealing with these challenges is made harder when you’re relying on legacy technologies. Collecting and analyzing ESG data is a complex task, and many providers are still resorting to ineffective manual preparation and collation of spreadsheets. Financial institutions are becoming more ESG-centric, but firms are struggling to show employees, shareholders and investors whether they’re reaching sustainable development goals.

Moreover, the increasing number of stakeholders demanding reports on performance means you’ll need insights from multiple perspectives.

Get smart with your ESG data

ESG and sustainability are data-intensive, requiring lots of smart technology to gather, analyze and strategically exploit diverse and fragmented data points from your operations, upstream supply chain, and downstream value chain.

Banks, for example, need an integrated approach to reporting that’ll ensure investments don’t fall foul of regulators, and that make the most of sustainability efforts. Achieving this will enable them to measure the performance of sustainability strategies, and clearly present ESG data to external stakeholders.  

Investors demand increasingly detailed information enabling them to assess climate-related risks (and opportunities) in their portfolios, which means data quality and transparency is critical.

A siloed and piecemeal approach to governance only reduces the value of reporting, unnecessarily slowing progress toward achieving sustainability goals.

The opportunity in ESG reporting

Despite the technical challenges there are significant advantages to consistent, timely and robust ESG reporting. Organizations are rushing to adjust their business models to meet sustainability goals for greater investment and to appeal to customers.

Increased interest from investors has led to ESG funds being set to surpass $42 trillion in assets in 2022, while research from PwC suggests businesses neglecting sustainability are in jeopardy – with 76% of consumers reporting they’d discontinue relations with companies treating the environment poorly.

The growing importance of reporting is particularly notable within financial services, with more firms looking to communicate how they’re making a difference. For example, a survey from the CFA Institute featuring an international sample of over 4,000 investors and 2,800 finance practitioners found 85% of investment managers are increasingly considering ESG criteria when making investment decisions.

Meanwhile, providers like NatWest are aiming to provide £100 billion in sustainable investment by the end of 2025, while also committing to hitting net zero targets by 2050.

Those leading the way on reporting ESG performance are analyzing changes in their organization’s performance over time, comparing it against set goals – and their competitors.

Beyond meeting regulatory and stakeholder demands, the ability to understand, surface, query, analyze and act upon this data is a means to improving your business. It can also help manage risks impacting your organization. For example, detailed insights into the investment landscape will help ESG funds add green-conscious businesses to their portfolios, or help central banks and regulators ensure financial systems can withstand the impact of climate change as we transition to a green economy.

ESG reporting with Exasol

At Exasol, we believe in the power of data to provide insights that’ll allow financial institutions to show how they’re tackling environmental challenges.

We’ll help your firm achieve a high quality of ESG reporting, with data specialism that knows what it takes to get this done. For example, by:

  • Creating a data architecture that ensures data is accessible and can be integrated in a performant manner
  • Ensuring the data management layer is easily queried and analyzed with appropriate data tooling
  • Integrating the data sources with effective third-party providers, like ESG ratings firms, that can leverage the data insights to produce a sustainability score or report

Our high-performance analytics database is the key tool for ESG data management and reporting, combining technology, columnar expression, and Loading...MPP for the fastest analytics and data warehousing.

Exasol will speed up your ESG dashboards, granting you the most up-to-date visualizations for sustainability reporting to all stakeholders.

If you want to see our high-performance analytics database in action, check out this demo video.