Blog: Why environmental, social and governance scoring is relevant to your bank - Intersystems

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Blog: Why environmental, social and governance scoring is relevant to your bank

environment

By: Kenneth Kuek, Business Development, InterSystems

Not long ago, banks and your investors were laser focused on returns as the primary measure of how the business performed. Now, a new barometer of business performance has emerged. 

Environmental, social, and governance (ESG) is a set of metrics used globally to measure a company’s sustainability and ethical footprint. It helps investors identify the relevant risks and opportunities associated with their investments to better understand how they can contribute to more sustainable practices.

Challenges in managing ESG issues globally

Customers, employees, investors, and other stakeholders are now holding organisations to account for their contribution to climate change and natural disasters. Consequently, ESG is a growing global concern for organisations. Having been widely practiced and well-received in Europe, ESG scoring as a guide to investing in more sustainable projects is rapidly gaining momentum with investors in Singapore and the wider Asia Pacific region.

It is now becoming easier to map responsibility for largescale environmental and social change. As a result, investors and customers have voiced concerns about the type of actions they want their funding to facilitate. In response, companies are taking proactive approaches to understanding their exposure to ESG risks, and readily deploying more internal resources to this new field of compliance.

How ESG impacts your bank

ESG is increasingly driving decision-making for all banks and other businesses worldwide, primarily because it’s now more visible and relevant to investors and customers than ever before. In regions where uptake of the ESG model once lagged, investor interest moving in from other markets means there are more funds available for banks with a strong ESG score. Companies that were nimble or forward-thinking enough to have an ESG presence ready to address these concerns now have a first-mover advantage.

Comparatively, in markets where ESG principles had early uptake, this score has been shown to correlate with better financial performance and a more positive customer sentiment.

Governments and private sector organisations throughout Hong Kong (SAR) and Singapore are emerging as leaders when it comes to promoting ESG as part of their agendas for economic growth. Indonesia, Taiwan, and India are also pushing towards green finance products and practices. 

What this means is that a new wave of investors is demanding more transparency and accountability from financial organisations and wealth management advisors, while regulators are encouraging more comprehensive reporting on ESG practices. This focus is providing many opportunities for banks and fintechs to grow your green finance capabilities.

How your data can support ESG initiatives that drive growth

In recent years, ESG has become a catalyst for sustainable development. Consequently, banks that ignore ESG may struggle to attract or retain new talent or financial investment. 

The biggest question is, how do banks and your customers quantify where relevant ESG gains can be achieved? This is where harnessing data to gain a 360-degree view of your business and its operations comes to the fore.

Banks can use the organisational data you already hold and align it with ESG scoring. It’s important to consider business data in terms of how it impacts a baseline of responsible business practices around areas such as: 

  • ethical governance

  • employee well-being

  • environmental sustainability

  • community involvement in operations that affect them.

From this baseline, your data can continually be used to build up a strong ESG strategy to improve your bank’s reputation among your stakeholders and identify future sustainable growth opportunities with ESG at the core.

Having an ESG focus, and the data that supports it, lets your bank deliver a new level of service to your customers and investors, such as demonstrating how your products and services align with ESG ratings. 

Harnessing data in this way leads to a virtuous circle of improvement, investment, and analysis that lifts the efficiency and capability of your banking operations as a whole. The good news is that accessing, harmonising, and aligning banking operational data with ESG scoring is now a seamless process because of new cloud-based technologies that are specifically designed to centralise, process, and analyse vast types and volumes of financial data.

Banks that use these tools will not only find they can more easily set and achieve ESG goals, but also gain better overall business insights and improved engagement with customers. With the right data management solution in place, the outcome is a win for the environment, banks, your customers, and broader stakeholders that can ignite the next generation of sustainable investment opportunities.

This article was originally published on Medium by the InterSystems Publication on July 14, 2022. | Please click here to connect with Kenneth Kuek on LinkedIn.

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