Environmental, social, and governance (ESG) is an increasingly important part of the financial services landscape, including the regulatory arena. With that in mind, there are efforts to scrutinize banks’ ESG claims more aggressively, via new and updated legislation and improved enforcement. That raises many questions about data collection, its granularity and taxonomy, and how banks can implement the relevant regulations effectively moving forward. Below, we explore green regulatory reporting and how financial institutions can place themselves in the strongest position as the situation develops, including leveraging data visualization tools.

European ESG regulations for regulatory reporting

Historically, ESG reporting fell under the non-financial umbrella – subjective and qualitative. However, the roles of the European Central Bank (ECB) and the European Banking Authority (EBA) have expanded over recent years. As a result, a swathe of intrinsically linked ESG texts has come into effect, standardizing reporting, with more in the pipeline.

Arming financial institutions with valuable information and giving investors the means to compare sustainability performance, they include, but aren’t limited to:

Compliance & customer knowledge

A bank’s entire data process is impacted by quantitative and standardized reporting, from product creation and risk strategy to credit applications and customer onboarding, and collecting the necessary information is complex and time-consuming. Meanwhile, once data is gathered, it must integrate easily into the current management system and customer review processes.

For example, Pillar 3 templates include banks indirectly financing projects that harm the environment and real estate loans that pay for non-energy-efficient buildings. In both cases, the disclosure calculation is complicated.

Image: A bank’s entire data process is impacted by quantitative and standardized reporting, from product creation and risk strategy to credit applications and customer onboarding.

Agencies like Sustainalytics, MSCI, and EcoVadis collect ESG data to rate businesses, but there’s no universally accepted framework, results differ widely, and they generally retain ownership of the data. 

Instead of banks going down the agency route or introducing a quick fix by adapting current processes, we advocate an integrated, cross-functional approach involving internal data collection and analysis. By doing that, myriad rewards await them and their customers, including:

Platform model

Another way forward is combining agency ratings with internally collected data in a platform. Given that in June 2023, the European Commission proposed ESG rating activities legislation to improve the “reliability, comparability and transparency” of the market, this could be a worthy consideration.

Underpinning the regime would be powers to enforce penalty fines – up to 10% of the annual net turnover of the provider. A draft report was published at the start of October; the vote is scheduled for November 28th, 2023.

Image: in June 2023, the European Commission proposed ESG rating activities legislation to improve the “reliability, comparability and transparency” of the market.

Sopra Banking Software’s commitments

When it comes to ESG, we strive for a best-in-class performance that goes beyond meeting regulatory requirements. With that in mind, our forward-thinking developers created a user-friendly data visualization tool prototype that leverages charts, dashboards, simulations, and key performance indicators.

Going way beyond Excel’s capabilities to explore and analyze data from different perspectives, the technology behind the interface is Metabase – top-ranked, open-source software. And the future is set to bring even more possibilities, when artificial intelligence and machine learning are incorporated. 

For more on this next-generation solution, watch our data visualization tool demo.

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