Drive growth by focusing on ESG data management

Consumers expect financial institutions to demonstrate the sustainability of their products and performance with ESG data. In the United States, almost 40% of potential customers are interested in adopting at least one green financial product. Meanwhile, only around 10% of the demand for sustainable global transaction banking is currently being met.

However, clients aren’t the only ones who prize sustainability in banking. Investors are increasingly relying on ESG data to inform their decision-making. According to one 2023 survey, 79% of investors make a point of considering how a company manages sustainability risks and opportunities when making buy decisions.

Regulators in certain jurisdictions also require ESG reporting. For example, in the European Union, the Corporate Sustainability Reporting Directive came into force on January 5, 2023, and now requires all large companies and listed enterprises to report ESG data.

What is ESG data?

ESG data refers to the KPIs used to assess the organization’s environmental and social impact and governance. It also evaluates the organization’s progress in meeting sustainability goals, whether set internally or imposed by regulators.

Three pillars of ESG

Source: TechTarget

Performance monitoring: ESG data provides insight into why ESG initiatives succeed or fail, and where resources will have the greatest impact.

ESG investing opportunities: According to the 2023 PwC Global Investor Survey, 85% of investors would like to see ESG disclosures treated the same way as financial statement audits. So, comprehensive ESG reporting helps attract investors.

Enhanced risk management: Collecting ESG data helps meet stakeholder expectations. It also provides a better understanding of risks associated with climate change and the transition to renewable energy sources, among other things.

Collecting ESG data

Increasingly, banking is taking cues from other industries
and embracing ESG topics as a path to growth

Source: McKinsey

Data types

Before you start collecting ESG-related information, ensure that you track the right metrics to meet regulatory reporting requirements. To identify relevant data, you can use one of the frameworks listed above (IFRS, GRI, SASB).

Data sources

Identify the ESG data sources and determine who will be responsible for supplying specific types of data. For example, certain governance data can come from financial reporting tools already in use or third-party data providers (certain environmental data, like energy consumption, can be collected automatically). Close any data gaps before adopting an ESG data management platform.

Data quality

To avoid misleading data, you need to ensure data quality at the source. Quality data is complete, accurate, consistent, unique, valid and timely.

Data security

The ESG data may include some sensitive information, such as financial performance metrics or employee data. Protect that data from unauthorized access with a combination of encryption and identity verification processes.

ESG data collection challenges

Disparate ESG standards: Multiple ESG frameworks use different metrics resulting in inconsistency and comparability issues:

• International Financial Reporting Standards (IFRS). The IFRS Foundation assumed the responsibilities of the Task Force on Climate-Related Disclosures after it was disbanded in 2023.
• Global Reporting Initiative (GRI) Standards. This framework is used by over 14,000 organizations across 100 countries and includes universal, sector-specific and topic-specific standards.
• Sustainability Accounting Standards Board (SASB). This framework encompasses 77 industry-specific standard sets, including those related to banking.

Technical debt

As universal banking systems are on average 14 years old, unaddressed technical debt can derail even the most well-thought-out data collection efforts.

Without first addressing legacy systems, ensuring the seamless flow of data into an ESG data management solution can be virtually impossible. Breaking those data silos is imperative.

Lack of quality data

While legacy systems are often associated with data silos, data flow isn’t the only challenge. Data supplied to the ESG data management solution should also be accurate and reliable; otherwise, it’s “garbage in, garbage out.”

Operational silos

Collecting and reporting ESG data is an organization-wide undertaking as ESG data concerns everything from supply chains to energy consumption and sources. While centralized governance over ESG data management is necessary to standardize the data, it has to be a joint effort between the business and IT teams.

Your roadmap to ESG data management success

Review your ESG data

Where is it? In what format is it? What’s missing? Identify the right metrics and data sources, and determine how you’ll ensure data quality and resolve data gaps. Make sure:

• The collected data meets investors’ expectations and regulatory requirements
• You have a comprehensive view of the available ESG data and data gaps

Establish data governance and controls

Who will be the single point of contact in charge of collecting the ESG data and ESG reporting? Appoint an ESG data officer and create an ESG data governance committee. Your whole organization must be aligned with your ESG data management strategy.

You’ll need well-thought-out data controls — the policies and procedures that dictate how you collect, manage, process and report on the acquired ESG data — aligned to existing internal protocols and regulatory requirements.

Set goals

Your ESG strategy may already include specific goals like the share of investment dedicated to renewable energy projects or the reduction of carbon emissions. But if it doesn’t, you may need to set explicit, measurable goals with specific metrics to track and monitor your progress.

What does “good” look like for an ESG data management solution?

• Integrated with relevant data sources (e.g., core banking system, financial reporting tools)
• Automated data aggregation, validation and verification
• Data analytics that derive insights from the data
• Solution generates comprehensive reports and adapts to changing requirements
• Investors see real-time ESG data
• It complies with applicable ESG regulations

If you’d like to leverage ESG data management expertise at this stage, a partner like Luxoft can help you conduct a “buy or build” analysis and select the right off-the-shelf solution vendor.

Update workflows

ESG data collection and assessment must be integrated into all relevant processes and reported to and communicated with internal stakeholders, from C-level management to employees.

Are you ready for ESG data disclosure?

Compare your current ESG data management against the following capabilities:

• Automated ESG data collection, validation, verification and aggregation, with data analytics to provide insights.
• Standardized ESG data management is consistent across the organization, ensuring that data is reliable, accurate and fit for purpose.
• Centralized view of ESG data collection, analysis and reporting.
• Collected data is checked against quality criteria to ensure accuracy and reliability.
• Single source of truth for all ESG data to prevent inconsistent or disparate data.
• Attributed ESG data can be traced to its origin to facilitate internal audits and reporting for external stakeholders.

DXC can help you make the most out of your ESG data

After spending over 45 years developing banking technology solutions, DXC is uniquely placed to help you design and implement a comprehensive ESG data management strategy to intensify your competitive advantage. We’re also well-versed in the challenges banks encounter during data transformation.

For example, we helped a Swiss cantonal bank integrate ESG data management with its wealth management solution.

DXC can help you determine which vendor solution is right for you and how to integrate it seamlessly into your software stack, or whether to build a bespoke solution instead.

Put this knowledge to work

To maximize the benefits of your ESG data and ensure regulatory compliance, simply reporting your data is not enough. Committing to a well-structured strategy can significantly enhance your organization’s ability to achieve specific ESG goals, improve risk management, boost resource efficiency and meet investor expectations.

To get started, contact our team of experienced ESG data management experts at DXC. We’ll schedule a consultation to discuss your specific requirements and how we can support you in developing and implementing an effective ESG data strategy.