July 28, 2021 | Written by: Anders Quitzau
Categorized: Innovation | Sustainability
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On the path to global net zero carbon emissions, the finance industry is a key driver while technology is an enabler of sustainability. To make meaningful progress to mitigate climate change, the global finance industry needs technology to quantify climate risk and mobilise investments. Financiers also must adopt collaborative, secure and trusted data platforms, and upskill. Together, the finance industry and public and private sectors can accelerate climate resilience and sustainable infrastructure through technology-enabled platforms.
The Nordic market for GSS (Green Social and Sustainability) investment amounted to approximately 75 Beuros, almost 5% of the global market and still growing rapidly. Considering that Nordics represent only 0.2 – 0.3% of the world’s population and economy – this is quite impressive.
The role of sustainable finance
Progress in delivering UN Sustainable Development Goals (SDGs) has been very slow to date and requires urgent action. Significant collaborative effort across Global Finance is required during the UN’s decade of action to 2030, to address environment and social impacts aligned to The Paris Agreement. Increased scrutiny from investors, regulators, consumers and employees to demonstrate accountability on sustainability performance means there is a clear role for the financial community to assess and communicate on companies’ climate risk. But finance is a critical factor to drive climate change actions, through redirection of significant investment capital to build back better, greener and resilient economies. Increased investments in smarter and cleaner technologies – such as renewable energy, electric vehicles, energy efficient buildings, and sustainable infrastructure – and exit from carbon intensive investments – such as fossil fuels – can significantly reduce carbon emissions.
Unfortunately, assessing climate risk is not so simple or straightforward. Finance and businesses encounter issues with climate data availability and quality, methodologies and capabilities to capture relevant climate data and enable financial impact analysis. Other challenges include ongoing ESG performance monitoring, inconsistent application of sustainability reporting standards, metrics and benchmarks. There is increasing pressure from investors and regulators for greater consistency and standardisation of climate related financial disclosures, with the aim of improving comparability and data insight from organisations’ operations, customer base and supply chain.
Innovative and secure technology systems and intelligent processes can help address these issues by enhancing data management, connectivity and collaboration between all value chain participants. Thereby simplifying financial systems, streamlining and automating processes to improve ESG data capture, analysis, monitoring and reporting. In turn, organisations can rapidly scale innovative solutions and create new opportunities that address climate change in accelerated timelines.
Climate risk analytics, due diligence and climate resilience
The role of technology platforms in making climate impact is intrinsic to global investment decisions driving positive change for communities, investors and business. Financiers are responsible for safeguarding business interests and minimising climate-related financial risk, improving decision-making, defining and delivering financial strategy to reduce carbon emissions. Assessing climate risk and financial impacts is complex and requires the right data, tools, and skills to derive actionable insights. Finance practitioners encounter challenges with translating data into meaningful insights and are unable to provide the analysis needed to support near real-time decision making.
In most cases, existing finance and business decision processes are slow, manual and laborious, relying on disparate systems or incomplete datasets. Technology enhances climate risk analytics through dynamic data capture and automated, intelligent, faster processes. Thereby improving climate and ESG impact assessments aligned to standardised KPIs, benchmarks and performance monitoring allowing consistent climate-related financial risk disclosures.
For example, IBM and The Climate Service alliance supports financial institutions and corporations to better measure and quantify climate-related risks. As part of the alliance, the companies have developed the TCS Climanomics® platform. By analysing climate risk exposure on assets, the platform allows organisations to quantify and disclose the financial impact of climate change in terms that can form the foundation for investment decisions.
Financing renewable energy and sustainable infrastructure with digital marketplaces
Investment in infrastructure of USD $6.9 trillion per year is needed to meet global development needs through to 2030 (OECD[i]) with developing countries accounting for the majority of these investments. This infrastructure needs to be designed, built and operated in sustainable ways to secure a net zero future for the world and resilience to climate change. To achieve this goal, there must be an open and collaborative approach to data sharing and innovation from trusted sources enabled by secure, yet open technology platforms.
For projects as small as community rooftop solar panels and as big as large-scale international infrastructure projects, sustainable finance is a challenge that secure and scalable end-to-end digital technology platforms can help address. Exponential and innovative technologies are essential to accelerate climate finance investment. Digital platforms will enhance process efficiencies and data insights, reducing risks and complexities in the value chain, whilst creating equitable benefits and value add for all participants. Technology specifically is an enabler of measuring and analysis impact of climate and values of assets. Key benefits of digital finance platform solutions include intelligent processes, standardisation, increased trust and transparency, reduced duplication, and advanced analytics, security and auditability and enhanced reporting. The pathways to enabling technology to mobilise investment and achieve net zero also involves improving the quantification, qualitative analysis and comparability of climate-related financial risk and the transparent disclosures of those risks and the opportunities.
Technology can also create new digital marketplaces to mobilise sustainable investment. Digital platforms that serve as online marketplaces can connect climate entrepreneurs and funding, institutional investment with well-structured projects, and facilitate public and private financing for sustainable infrastructure. These types of end-to-end digital platforms can speed up highly manual and inefficient documentation processes, deal flows, and collaboration across ecosystems partners with added transparency.
A recent example of this type of digital platform is with Raise Green’s collaboration with IBM Global Business Service (GBS). Together, Raise Green and IBM developed a software solution designed to empower entrepreneurs, regardless of experience or income, to start their own solar energy businesses. The Originator Engine is a digital platform that connects customers, investors, and ecosystem partners to help navigate the process of securing financial investment for new businesses in the solar energy sector. The new digital platform was deployed using Red Hat OpenShift on IBM Cloud, and enables Raise Green with the flexibility to evolve the platform as they continue to grow and expand into areas beyond solar.
Shaping sustainable finance policy and skills development
The lack of global consistency, incomparable and differences in sustainability standards due to numerous existing frameworks is challenging for finance practitioners as preparers of climate related financial disclosures and reviewers (e.g. investors, regulators). The latest global financial regulatory updates on climate reporting and role of technology call for the need for financiers to constantly grow skills and training programs to deliver long term industry change to build cleaner and resilient green economies. Technology can help provide transparency in sharing real-time changes in the latest global policy and regulatory developments in sustainable finance, as well as relevant climate technology and analytics. By upskilling finance professionals to better understand technology tools, information analysis, ESG impacts and sustainability standards, the finance industry builds capacity at large to improve consistency in decision-making and disclosures that could align with the Green Finance Education Charter, backed by BEIS.[ii]
Overall, technology can be a catalyst in the toolbox of global financiers to accelerate action and progress on sustainability goals by mobilising investments, quantifying climate change risk, digitising the marketplace for financing sustainable infrastructure, and equipping finance professionals with the skills and digital tools for a sustainable future.