X

New technologies can improve ESG data and decision making – Capco paper

Despite the absence of global regulatory harmonisation, ESG standards are becoming a central feature of public discourse, whether via supranational organisations such as the EU or through social and environmental activists with international reach such as Extinction Rebellion. However, there is currently no common definition of what makes a ‘sustainable’ company or what constitutes good ESG practice, which in turn gives rise to problems when measuring and reporting ESG.

A new paper from Capco, ‘ESG in financial services – today and in the future’, explores the ESG challenges within financial services and examines the technologies that could help address them. It considers the new types and sources of data that are emerging in the real economy, and looks at how the FS industry can integrate them within products and services to generate more coherent ESG information and drive better decision-making:

  • Monitoring sentiment: AI-driven sentiment analysis could be key for tackling the shortcomings around ESG measurement, and by extension enhance the public perception if such metrics. It can be used to access the unstructured data which makes up around 80 percent of the world’s data, opening up new opportunities to investigate sentiment towards companies via previously unavailable information.
  • Network Theory – understanding ESG links: Information networks can be utilised to help understand the ESG profile of a company through better information gathering. Similar to sentiment analysis, network theory principles can navigate through vast networks to compile true ESG profiles. Researchers can investigate relevant connections, such as companies’ supply chains or business dealings, to gain insights into how companies behave today and in the past – and the likelihood of them behaving unethically in the future.
  • Combining diverse technologies: By using technologies drawn from diverse industries it is possible to benefit society and make widescale ESG reporting possible. Firms could, for example, combine satellite imagery, AI sentiment analysis and drones to measure the impact of their operations on the environment in real-time.
  • Tokenisation – ratifying ethical supply chains: To truly create a standardised and coherent ESG picture across markets requires a way to share data, in real-time, across industries. One potential technology that could help combat this issue is tokenisation, which enables the creation of a real-time and verifiable shared database of assets and attributes a secure code or identifier to them. Tokenisation’s founding principles are centred around trust and security, and this makes it a prime candidate to help solve some of the issues around ESG measurement.

Charles Sincock, Managing Principal and ESG lead at Capco, comments:

“The lack of consistency in approaches to ESG is a real worry for the investment market. There needs to be far greater transparency within ESG data and around ESG scoring to enable financial institutions to be certain that they are investing in a truly sustainable cause. Greater transparency comes through better data collection and more reliable data sources.

Alongside increased transparency, there needs to be a supported, recognized framework which is sponsored by the industry and regulators – the International Organization for Standardization (ISO) could be a powerful force in providing more clarity to such frameworks.. For financial companies, this would be valuable for all elements of the finance chain, as they would be able to see how well they are performing and also how others are performing.”

“The technologies we highlight in our paper can be combined to gain a greater understanding of each organisation’s operating landscape. By better understanding networks such as supply chains, energy usage and employee habits, targeted interventions in response to new information or regulation will be possible – giving businesses the opportunity to approach ESG in a flexible and agile fashion.”

Capco is a global management and technology consultancy headquartered in London

 

 

Featured News

This Week’s Most Read

  • Price of scarcity: Central banks are driving large valuation premiums on assets with limited supply

    By Charles-Henry Monchau, CIO at Syz Bank It is important to understand the concept of scarcity to better understand its mechanics and its impact on markets. Scarcity refers to the

  • Why now is the right time to invest in Japan

    By Masakazu Takeda, lead portfolio manager of the Japan Focus All Cap strategy at SPARX Asset Management The issues that have plagued Japan over the years are now at the doorstep of

  • Why high yield bonds could be the next ESG frontier

    By Lila Fekih & Mark Remington, Co-Portfolio Managers of the New Capital Sustainable World High-Yield Bond Fund at EFG Asset Management  Equities have garnered the most attention in the ESG

  • Fundsmith hints at bumpy ride

    Terry Smith’s annual letter to shareholders reports a slight underperformance of the MSCI World Index over one year Despite the value rally, quality stocks outperformed in 2021 Smith says unexpectedly

  • Brooks Macdonald Funds under Management hit £17.3bn

    Brooks Macdonald today publishes an update on its Funds under Management (“FUM”) for its second quarter ended 31 December 2021, together with a Trading Update for the half year. FUM

  • Ninety One appoints Juliana Hansveden

    Hansveden to develop emerging markets sustainable equity capability Ninety One has today announced the appointment of Juliana Hansveden, CFA, as Portfolio Manager, Emerging Markets Sustainable Equity. In this newly created

  • Man GLG’s Atherton: Governance revolution in Japan like the UK in the 80s and 90s

    The ESG-driven corporate governance revolution in Japan is creating investment opportunities similar to those in the UK in the 1980s and 1990s, says Jeff Atherton, manager of the Man GLG

  • US December CPI inflation rises 7% from a year ago

    David Goebel, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the latest US CPI inflation data: US December headline CPI inflation rose

  • BlackRock launches two new active Climate Action funds

    The BGF Climate Action Multi-Asset Fund and the BGF Climate Action Equity Fund leverage BlackRock’s deep expertise in active sustainable investing with the objective of generating positive environmental impact.  As

Wealth DFM