Environmental, social, and governance (ESG) issues are now increasingly important in everyday operations at many banks. That’s because consumers and investors care more than ever about businesses’ environmental impact, their stance on social issues, how they treat their employees and community, and whether they act as good corporate citizens. In fact, 76% of consumers say they would end their relationship with a business that treats its employees, environment and surrounding community poorly.
But it’s not only consumers and investors driving change. Emerging ESG regulations, such as the Security and Exchange Commission’s climate disclosure rules, are increasing the need for ESG bank solutions. Though 60% of financial institutions say ESG is a top priority, legacy technologies and longstanding data management challenges make it difficult for banks to align their operations with these good intentions.
Implementing a comprehensive ESG data strategy and ESG data management platform can help banks meet these new demands, better manage their risks and enhance their positive impact.
How consumer and market demand drives ESG in banking
Increasingly, consumers want to do business with companies that align with their values. They want banks to operate more ethically and sustainably and expect them to offer products and services that reflect this ethos.
Consumers are interested in products designed with sustainability in mind and want banks to invest in projects that promote sustainability — even if it means slightly lower yields. Banks should not only understand their environmental impact but take meaningful steps to mitigate it. For this reason, they are increasingly focused on reducing their greenhouse gas emissions, which may be emitted directly from their buildings or indirectly from their operational activities, such as business travel, employee commuting, or from companies that receive loans and investments from them. Additionally, consumers crave expert advice about socially responsible investing. They can take advantage of banking tools that help them track their environmental impact, but there is a lack of these solutions in banks.
Banks can’t always address these needs due to ongoing challenges with ESG data management and their technical infrastructure. Their operational systems mostly focus on customer transactions, customer life cycle management, and traditional compliance activities, rather than executing modern ESG initiatives and managing the data that aligns with them.
Overcoming obstacles to strengthen ESG programs
It’s difficult for banks to integrate emissions data into existing systems to measure and track how much carbon they emit across their supply chain. Data silos and supply chain partners also make it difficult to aggregate and share information to gain a holistic view of ESG performance. Evolving ESG regulations only add to this complexity, as banks must track different data sets to meet various voluntary disclosure and corporate reporting requirements related to sustainability, leadership, and workforce diversity; community development and fair lending practices; and human rights and labor standards. The underlying issue is that banks lack a single source of truth for ESG data, so they can’t deploy it in a scalable way for the diverse stakeholders, demands, and use cases they must navigate today.
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Improved ESG data management for banks is crucial. Poor oversight could lead to avoidable financial losses or improprieties that undermine public trust. Investing in sectors with significant environmental risks could compromise business performance and affect investor returns, and financing projects that don’t reflect community values and ethics could pose both legal and reputational risks. Strengthening ESG programs is vital to their long-term financial health and resilience. With an effective ESG data strategy powered by ESG-aligned solutions, they can meet investor and consumer ESG expectations and enact better risk management.
ESG solutions for banks: Harnessing tech to drive impact
Cultivating a dedicated ESG data strategy can help banks increase transparency and accountability.
Banks need to develop a comprehensive approach to ESG data collection and reporting. This starts with identifying their material risks and assembling internal and external data sources that provide greater insight. Many companies conduct what’s called a materiality assessment to get a baseline understanding of which ESG issues most affect their business. Once this is complete, they can create a new ESG data and technology roadmap to realign their data architecture with their ESG priorities.
Technologies such as generative artificial intelligence (AI) and application programming interfaces (APIs) can bring their ESG data ecosystem together. APIs allow banks to connect data across applications and third-party sources, while Gen AI allows them to repurpose ESG data for activities such as regulatory reporting or for tools that allow customers to track the environmental impact of their investments. Banks can leverage these technologies to integrate ESG practices into their workflows, core banking processes, and new programs, such as issuing green bonds or lending to companies that have climate-aligned business models.
Getting ESG data management right will require ongoing good governance and prioritization. Appointing an ESG data officer or forming a cross-functional committee of stakeholders from both the operational and technical sides of the business can help banks keep their ESG programs on track — especially as regulations shift.
As banks get their ESG data house in order, they also can make their physical assets more sustainable by partnering with tech companies to achieve their energy usage goals. Samsung, for example, offers SmartThings Pro, which brings the company’s hyper-connected smart home technology to business environments. SmartThings Pro has intelligent energy-saving technology features that reduce energy consumption based on ambient brightness, content analysis and motion detection. The solution also includes SMART Signage, which allows businesses to operate digital signage displays in more energy-efficient ways and reduce paper use across their operations.
Whether it’s optimizing data collection or adopting energy-efficient technologies, embracing a multifaceted strategy can help banks develop more sustainable operations and advance their ESG goals.
The future of ESG in banking
ESG is reshaping investment decisions and risk management strategies in the financial sector. For banks to respond effectively, they need to improve ESG data management, connect data across their environment, and make it actionable. They also need to ensure the technologies they use drive greater energy efficiency. Banks have a deep desire to do right by their customers and investors. With a well-intentioned and well-executed ESG data and technology strategy, they can finally bridge this gap.
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