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Net Zero for Financial Institutions: How to Crush Your Sustainability Goals

Herbert Schild, Industry Lead, Financial Services
December 13, 2022

Companies across sectors are feeling the pressure to report on the progress of their environmental, social, and governance (ESG) initiatives. Governments have set strict regulations to steer the world toward net-zero goals. While these regulations vary by region, one goal that’s been widely adopted is to reach net zero in carbon emissions by 2050, originally set in the Paris Climate Agreement. To meet this target, major banks, including Bank of America, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and CitiGroup, have publicly outlined specific emissions benchmarks to meet by 2030.

In addition to aggressive regulations, consumer demands are also shaping ESG efforts. Seventy-six percent of consumers say they will stop supporting companies that mistreat the environment or their community. Standing firm on sustainability will improve brand equity and customer loyalty (83% of consumers believe companies should actively shape ESG best practices).This value is particularly true for developing new sustainable products and services or for monetizing a treasure trove of internal ESG data that will only grow over time.

Unfortunately, the general public doesn’t know how hard meeting these goals can be. Even gathering the data for reporting is a challenge. ESG data often sits in separate systems for different departments and teams within the financial institution, and gathering data from third-party suppliers and vendors outside of the organization can also be challenging. In fact, 49% of investors claim that a lack of strong data has become a roadblock to further ESG progress. It’s important not to overpromise and then underdeliver. When this happens, you get into the realm of “greenwashing,” which refers to the practice of representing products or services as more eco-friendly than they are. If you fall into this trap, you risk losing customers and damaging your brand’s reputation.

How financial institutions can make progress toward net-zero goals.

While sustainability practices have existed for years, the pressure to make ESG a central business focus is new. Companies have their work cut out for them around reporting and showing progress. Regulators may only need to see reports of carbon capture for now, but soon companies will need to show tangible progress in reducing emissions year-over-year.

The pressure is on. To succeed long-term, financial institutions must get started or ramp up existing efforts right away to make it easier for ESG teams to accomplish their goals. Here’s how to reduce the risk of ESG penalties for your financial institution.

Build organizational buy-in for ESG.

ESG and sustainability offices require the cooperation of multiple teams within an organization. Their remit involves reaching critical emissions goals and demonstrating that commitment with data. Often, this means getting carbon usage data from other teams. For example, the sustainability office may need to get electricity usage data from the information technology departments. One major challenge comes from the fact that these other teams get busy with their own projects and deadlines, which can push ESG initiatives like data reporting or implementing changes down the list.

For your company’s ESG efforts to succeed, upper management needs to impress the importance and urgency of ESG upon every team and department head. While sustainability offices can do their part to build organizational alliances, the message also has to come from the top. Leaders must consistently stress the importance of responding to data requests promptly and of cooperating with suggested changes. For example, department heads may need to start including ESG experts in the vendor selection process for service providers (and consider avoiding vendors or suppliers who can’t readily provide verifiable ESG data).

Collapse data silos.

Part of getting internal ESG processes up and running involves gathering data and generating reports, which can be time consuming and operationally challenging. Financial institutions house ESG-related data, often in an unstructured or semi-structured format, across many systems throughout the front, middle, and back offices. The data lives across various functions, like governance, risk and compliance, trading, product, and more. Teams will also need to capture ESG data from third-party vendors (and consider removing those that cannot provide this data).

Corralling data can quickly become a challenge, as it touches so many parts of the business and the IT environment. Financial institutions often have disparate solutions that lead to data silos. This accidental IT architecture makes it harder for data to flow easily through the organization.

But you can simplify the data reporting process by connecting data solutions. This may seem like a tall order, but data fabrics make it much more feasible. Data fabrics allow developers to access, combine, and modify data in a virtual layer without having to migrate data or change the underlying data models and schemas of existing systems. They can create applications or workflows that connect these data silos and allow teams to generate reports much faster.

Orchestrate and automate processes to streamline data collection.

Gathering data can be time consuming if done manually. And manual data collection is likely still happening in some pockets of your enterprise, unless you have fully integrated your systems via a data fabric. When the process is manual, teams may drag their feet when asked to provide data, especially if they have competing priorities.

Make it easy to report by automating as much as possible. Process automation platforms allow you to connect disparate software systems and data silos, streamline a single workflow across teams and stakeholders, and trigger and assign tasks as needed.

Business process automation technology lets you monitor and continuously improve processes so each reporting cycle gets faster. Process mining tools, which map out real data flows and actions in a visual format, can give you critical intelligence on where to improve. You could also use process mining on a continuous basis to ensure existing workflows remain valid—and to back up your claims to the public and regulators using real-world data and proper review and approval processes. Process mining automatically traces process metadata, creating a visual view of the current state and a desired future state depending on the criteria you define. You can then use your process automation platform to fix the gaps quickly.

Maintain flexibility to change.

ESG regulations are a constantly moving target. Standards frequently evolve and change. This is particularly true for financial services companies with global footprints, where standards in one country differ from those in another.

Rules can vary between individual provinces or states as well. This impacts localized regulations in target countries, making it hard to set a single standard.

The key components to look for here are flexibility and agility in the tools you use. A process automation platform that includes low-code tools helps you change workflows without extensive development time. For instance, if standards dictate the need to collect new data, with a low-code automation platform you can quickly update applications to meet the new requirements.

Your toolbox for the road to net zero.

Financial institutions are at the forefront of the ESG movement. ESG is still a nascent discipline compared to other business functions, but precisely because of their newness, ESG processes are ripe for automation and optimization. And because regulators are ramping up scrutiny, now is the time to plan and expand your ESG strategy.

The right automation platform will help you craft an automated, optimized process for ESG reporting and monitoring, giving your sustainability teams the data they need when they need it and empowering them to make changes across the organization. Reprioritizing ESG initiatives to meet your net-zero goals is critical, and so is finding the right technology to help you get there.

Learn how financial institutions can streamline their ESG efforts with the eBook, Sparking Change: How Financial Groups Can Galvanize ESG Efforts.