The ESG Data Challenge — Develop Your Strategy

Part two of our series on sustainable finance explores the many challenges businesses face when collecting ESG data and possible solutions.

Steffen Lorenz Steffen Lorenz

In part one of this miniseries on sustainable finance, the focus was on processes. Equally important is ESG data. The World Economic Forum reports that data is the number one ESG challenge for organizations.

ESG data challenges arise from multiple different areas:

  1. Data not available: most companies only just started gathering ESG data, and that’s mainly bigger corporations. The focus is on easy-to-capture information like CO2 emissions for business trips. When it comes to more extraordinary data (e.g., biodiversity aspects or the impact of products on endangered species) or data from small and medium enterprises (e.g., a bakery with 5 employees), the collection process becomes more complicated. According to one Software AG customer, only 30% of the ESG data required for risk management and reporting is available today.
  2. Multitude of data sources: there is a multitude of ESG data providers already available today, ranging from traditional providers like Bloomberg and MSCI, to more specialized ones like ISS ESG and Sustainalytics, to providers with a rather specialized focus like Miotech that only covers companies in China. In the future, banks and insurers will have to connect to other data sources as well to directly access relevant data (e.g., weather data and sea levels) via the Internet of Things (IoT).
  3. Change is the only constant: banks and insurers will need to connect to new ESG data providers, import new data feeds, access data from customers and partners directly, and access unstructured data from platforms that don’t exist today. Nobody can predict for sure what the ESG data universe will look like 18 months from now let alone years in the future.

What makes these challenges even greater is the lack of resources available in the IT department due to the skills gaps that Gartner predicts is already here. But ESG data is urgently required to manage risk, enable new sustainable products, and support financial and non-financial reporting. That’s why now is a great time to rethink and modernize integration as you transition towards sustainable finance and fulfill your need to ESG data.

So how do you make sure that ESG data is not a barrier for innovation, time-to-market, and compliance? How can you avoid previous-generation IT systems and siloed data sources from holding you back in your transformation towards sustainable finance? What if you could guarantee consistent ESG data flow across the organization to accelerate sustainable, customer-centric innovation?

webMethods – Software AG’s ESG data solution

To do this, you could implement an ESG Integration Hub. It collects ESG data from different sources such as ESG data providers, customers, employees, partners, and new data sources like sensors, and distributes the data to the different systems within the corporate IT. For a bank, this could be the loans management or a risk management system. For an insurer, this could be the investment portfolio management or a claims management system. The ESG Integration Hub provides core data processing capabilities like data transformation, data quality management, and error handling. Thus, the ESG Integration Hub ensures consistency, timeliness, as well as correctness/completeness of the ESG data. Having a single platform to process ESG data can help remove the “ESG Spaghetti” that is caused by the multitude of sources, formats, and technologies.

That means you would be able to develop a robust ESG data strategy that supports your sustainable finance initiatives. You would be able to streamline and accelerate developments, whether it’s for innovative products or for risk and compliance purposes. And you would be able to import ESG data from every channel, make changes quickly, and ensure high data quality. Finally, you would be able to access data from legacy applications to use it in modern, sustainable processes.

An ESG Integration Hub can be implemented using the capabilities of the webMethods platform. webMethods is a unified platform for creating integrations and APIs that also enables connectivity to IoT sensors, business partners, and legacy (mainframe) applications. webMethods has evolved over 20+ years and has been used by major financial services companies all over the world in mission-critical scenarios.

Learn more about webMethods and how it can help your organization to implement sustainable finance-based ESG data.