ESG data governance: A growing imperative for banks

Article and Report by Daniel Heller, Andreas Reiter, Sebastian Schöbl, and Henning Soller: “The banking industry is facing mounting pressure to meet fast-changing demands in environmental, social, and governance (ESG) issues. New and evolving regulations call for greater transparency and disclosure of ESG-related data (see sidebar, “ESG regulatory and disclosure requirements”). Stakeholders and investors are increasing their scrutiny of the effects investment decisions have on the climate and society. Consumers are holding banks to higher ESG standards as well—in 2019, about 14 percent of total client-driven revenues were controlled by consumers whose banking preferences were influenced by concern about purpose and sustainability.

To meet these expectations, banks must adapt their IT systems to systematically collect, aggregate, and report on a broad range of ESG data. However, many financial institutions still do not have a comprehensive approach to integrating ESG data into their existing risk reporting.

Moving toward this goal will require significant changes to the IT infrastructure, from applications to data integration, architecture, and governance. New applications include not only the management and capture of ESG data but also financed emissions models, climate risk models, ESG scorecards, climate stress tests, and climate-adjusted ratings. ESG data must be woven into existing processes, such as credit approvals and decision making. And banks will need to adjust their data architecture, define a data collection strategy, and reorganize their data governance model to successfully manage and report ESG data.

Investing in the right priorities from the beginning will enable banking IT leaders to quickly build these new capabilities and solutions without accumulating technical debt…(More)”