Data quality challenges in ESG reporting for financial services

  • Posted on July 25, 2023
  • Estimated reading time 5 minutes
Esg reporting challenges in financial services

In the current landscape of Financial Services Environmental, Social and Governance (ESG) reporting, compliance requirements are rapidly evolving. Financial firms now face the need to produce different representations and reports for various governing industry bodies. For UK firms, the FCA’s disclosure requirements are the central point of call for meeting reporting requirements supplemented by EU regulations through SFDR. Other frameworks and initiatives include the UK Green Finance Strategy, and the Green Finance Institute. Each of these frameworks and initiatives aim to incentivize and supporting firms in producing clear ESG reporting and engaging ESG-focused stakeholders. So, what are the challenges in fulfilling these requirements? And how can Financial Services take ownership of this evolution of the ESG reporting landscape?

Lack of standardisation
One of the significant challenges in ESG reporting is the lack of standardization. Without standardized reporting frameworks and guidelines, it becomes difficult to compare and analyse data accurately. This inconsistency and lack of standardization can lead to inaccuracies in ESG reporting and difficulty deriving real strategic value from it. Financial firms must establish and adopt reporting standards, data governance frameworks, and master data management practices to ensure improvement across all data quality dimensions.

Complexity of the regulatory framework
ESG reporting is subject to a range of regulations and frameworks, creating a complex landscape for financial services firms to work in. For example, banks operating across some EU countries could be forced to submit independent reports for ECB, EBA and SFDR. Compliance with these regulations is crucial to avoid penalties and maintain a good working reputation with clients and regulators alike. Defining the problem statement, understanding the business value, and identifying use cases and requirements are essential steps in navigating this regulatory complexity. This will also help in creating a future-proof strategy for ESG reporting. This should be a consideration of how comparable ESG reports are across businesses and regulatory requirements.

Lack of accurate and reliable data and technical debt
Obtaining accurate and reliable data for ESG reporting can be challenging, particularly for smaller companies and those operating in emerging markets. Many organisations supplement internal data with external information, presenting a need to keep internal data secure when aggregating. The practical availability, ease of data acquisition, and associated costs create hurdles that organizations must overcome. Additionally, fostering a data culture and promoting data literacy are vital to ensuring data availability and understanding its significance in ESG reporting.
ESG data itself often suffers from incompleteness, inconsistency, or unreliability which can lead to potential inaccuracies. Tackling data quality issues requires a dedicated focus on data quality and the adoption of appropriate tooling and frameworks. Financial services firms must prioritize data quality as a fundamental aspect of their ESG reporting processes to guarantee the accuracy and reliability of their disclosures.

Robust technology infrastructure is a prerequisite for effective ESG reporting. It should encompass data collection, storage, and data analysis. However, many financial organizations face challenges due to complex legacy systems or limited resources to implement comprehensive change to infrastructures. It is crucial to invest in a data platform that supports sustainability data and calculations, something Avanade has extensive experience in, providing the necessary foundation for accurate ESG reporting practices.

Why partner with Avanade and how can we help?
You can trust Avanade to be the right partner to help you address Data Quality Challenges in ESG Reporting. Avanade has proven credentials in supercharging the value is delivers to clients in this area by bringing both strategy, technology and domain expertise to our clients. This approach ensures that our clients obtain the most value out of their technology investment and have a staged plan on how to progress their data and reporting maturity over time. On top of this new data provides insights for continuous learning and improvement.

Our strategy expertise
Avanade's Quick Start program offers a structured approach to jumpstart ESG reporting initiatives, assisting organizations in defining reporting requirements as well as business’ challenges and blockers. Successful transformation to meet reporting standards requires coordinating people, tools, and processes. Hereby, Avanade engages key stakeholders from the client organisation to capture varied organisational perspectives of the problem and then to define problem and opportunity statements accordingly. Next, Avanade deep-dive's into defining a list of use-cases needed to get the business ready to report for ESG in the most future-proof way. Where relevant, Avanade’s Quick Start team will advise you on which use cases will have the most impact, best practices and help you to define and implement supporting tools and processes needed. This could be such items as a data governance framework and or improving data sources to ensure data quality is improved to ensure data is fit for purpose.

Our tech expertise
Avanade, in partnership with Microsoft Azure Cloud, empowers financial services organizations to transform their ESG reporting processes and derive valuable insights. Azure Cloud's scalable infrastructure and advanced analytics capabilities enable efficient data collection, storage, and analysis. With robust data governance and security features, organizations can trust the integrity and confidentiality of their ESG data. Avanade's expertise combined with Azure Cloud's capabilities optimizes and streamlines ESG reporting, driving positive environmental, social, and governance outcomes.

Leveraging the Microsoft Cloud for Sustainability and Avanade Tech Accelerator, financial services firms gain access to tailored tools and technologies designed for ESG reporting, providing scalability, security, and robust data management capabilities. In conjunction with Avanade's Sustainability Framework, which integrates data quality practices, technology infrastructure, and compliance frameworks, organizations can significantly enhance the accuracy and reliability of their ESG reports within the space of 1-3 months, depending on the complexity and scale of the business.

With the evolving regulatory landscape and the increasing importance of ESG reporting, financial services firms must address the data quality challenges associated with this process. Avanade's strategy and technological expertise and comprehensive solutions can help organizations transform their ESG reporting practices, optimize the process, and derive meaningful insights and value.

By embracing the opportunities for innovation and collaboration, financial services firms can navigate the complex ESG reporting landscape and achieve their sustainability goals.

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