In my last two blogs, I’ve looked at the sustainability challenges facing banks and how a couple – BBVA and ABN AMRO – are responding. A recurring theme is data. In my final blog we’ll look at this in detail. Our recent report into sustainability and banking with Efma, a global financial services trade association, highlighted data management as a key area of focus:

• Data integration is the biggest challenge to climate risk analysis: The main issue is the lack of integration of climate risk data with a bank’s risk management framework. Almost a third (32%) struggle with this issue. Beyond this, there was a cluster of challenges, including the unaudited nature of emissions data reported by non-financial companies, immature reporting and disclosure systems, lack of climate model building skills and too many green financial standards and ratings (all around 12% to 17%).
• Technology is being used to develop climate data analytics and reporting: The top area for technology focus is better climate data analytics, reporting and management systems. Almost a third of respondents (32%) cited this as a major area of concern, followed by developing climate risk models (21%).

Anne-Sophie Castelnau, Global Head of Sustainability at ING, one of the interviewees for our report, remarked: “Research shows that companies that lead in sustainability are more innovative, perform better financially and have better credit ratings. We expect regulators to have growing expectations in terms of reporting, especially data-based reporting, with growing granularity. We are looking at data and how to capture it in our systems to enable climate risk portfolio analysis and other climate risk analytics.”

Managing sustainability data effectively

We’ve developed various approaches to improve climate data management capability:

• Microsoft Cloud for Sustainability: This maps your data to greenhouse gas (GHG) factors and calculates GHG emissions. It’s audit ready, prepares reports and creates AI-enabled emissions forecast simulation and reduction strategies. It offers a feedback loop, not a one-time event, by using technology to reduce carbon impact and waste via an increasingly real-time view of environmental footprint across all emissions sources. The emissions dashboard calculates how much carbon emissions are related to your cloud workload. It covers calculations for Scope 1, 2 and 3 (available May 2022) and is vetted by Stanford University.
• Sustainability Smart Hub: This is a fully integrated advanced analytics solution based on Microsoft Azure with real-time monitoring of sustainability indicators. It uses structured and unstructured data, supports API integration to services and includes social media data. We start with an industry data model and extend to include client KPIs, parametric visual settings and configurable dimensions (e.g., Global Reporting Initiative domains, buildings, geographic locations, sentiment). We use an intuitive modern web app to measure achievement of sustainable development goals, as well as advanced reporting and export capabilities.
• Arabesque S-Ray: This uses big data, Natural Language Processing and machine learning to compute daily sustainability scores. It includes over 50,000 data sources and produces both ESG and UN Global Compact dimensions (e.g., anti-corruption and human rights). We combine this with a self-service benchmarking tool that provides real-time access to publicly available company performance data. We combine this with a value-based insights platform to understand performance compared to key competitors.
• Visualization and optimization tools: These use native Azure services, like Azure Arc and Azure Resource Manager, to visualize complex cloud and hybrid estates and provide infrastructure, application and aggregate data levels to optimize the environment. The initial focus is on cost optimization and understanding workload best placement and operational insights. It can optimize applications for Azure cloud architecture for up to 98% carbon reduction potential.

This is a rapidly evolving situation and banks are working daily to improve data management capability in order to enhance regulatory reporting, model building and climate risk management.

For more information, please download our report: “Taking sustainability seriously: Are banks ready?”