There is no doubt that environmental, social and governance (ESG) investments will be the dominant theme of the financial sector and markets over the next decade. About one-third of all assets under management, or $35 trillion of assets under management worldwide, use some form of sustainable investment strategy.
Granular data are becoming essential to capture the diverse needs of an expanding investor and financial base. Moreover, today's ESG investors are far from uniform and there is a growing need for data and analysis that address both “value” and embedding ESG 'values'.
ESG data are strongly recognized as critical assets for financial institutions and for the banking sector and Synesgy as a global digital platform allows to:
- Collect ESG data in a granular way.
- Understand their criticality as they will become the new protagonists in strategic and business model decisions as well as reputation on the market.
- Adapt business plans to ESG criteria especially in relation to credit risk policies. These plans must clearly outline a roadmap with verifiable milestones and describe a solid implementation and monitoring process.
Synesgy’s methodology follows the guidelines that policy makers worldwide are recommending in building the regulatory architecture to ease sustainable finance’s growth and development.
For example, according to the Principles for Responsible Investment, there are more than 750 policy tools and guidelines related to sustainable finance in place today – up from just 320 in 2012.
Many of these policy initiatives – from the EU’s Sustainable Finance Disclosure Regulation to alignment with recommendations from the Task Force on Climate-Related Financial Disclosures – mean that market participants need increasingly holistic datasets and key sustainability performance indicators to meet evolving regulatory requirements.
Additionally, it is to mention also the increasing importance of stakeholder management in explaining why double materiality is taking root for the disclosure and reporting of financial institutions – not only with policymakers but also among investors.
Certainly, a double materiality perspective captures the dynamic nature of materiality: sustainability issues today may evolve into financially material risks tomorrow.
To achieve the issues contained in the double materiality approach, regarding to both financial and sustainability aspects that financial institutions have to disclose, it is fundamental taking into account the guidelines emanated by the European Central Bank (ECB) in the thematic review into banks’ strategies and their governance and risk management frameworks, examining whether banks adequately identify and manage climate risks as well as environmental risks.
In fact the ECB set of the milestones for all Banks, plans to:
- by March 2023: to define a comprehensive materiality assessment of the impact of climate and environmental risks on their activities;
- by the end of March 2023: to define the inclusion of climate and environmental risks in their governance, strategy and risk management;
- by the end of 2024: to define the inclusion of climate and environmental risks integrated into stress testing frameworks.
In order to meet the above mentioned achievements, Synesgy is the right tool to align the regulatory frameworks and to assess the ESG performances of financial institutions portfolios and investments.
Through the ESG evaluation and the assessment provided by Synesgy, banks and financial institutions in general can easily address concrete and tangible benefits for each ESG pillar, as explained below.
- Measuring Carbon Footprint portolios;
- Monitoring climate-related impacts.
- Reporting of subsidiaries’ social impacts;
- Enhancing suppliers’ sustainable culture.
- Enhancing governance policies disclosure;
- Reporting systemic risk management.
Concluding, it is worthed to say that it is widely recognized the growing recognition that companies and investors should support for a fair and just transition for workers and communities as they mobilise capital to realise critical climate objectives over the next decade.
This means that topics including responsible company re-organisation, career development and retraining, and community relations will be critical components as companies look to decarbonise their business models and balance sheets.
It is also believed that ESG assessments on companies should speak to more than just their ability to manage ESG-driven financial risks: to address this purpose Synesgy is the tool that allows to capture how financial companies are generating value that extends beyond shareholders to diverse stakeholder communities and the environment itself.