Harnessing technology to deliver against ESG goals

Strong support for environmental, social and governance (ESG) initiatives is key to long-term prosperity and survival – not just for business, but for everyone. It’s an area where the financial services industry needs to take a lead and I’m encouraged by the results of our recent State of the Nation survey which show that ESG clearly remains a priority and an area of investment for the vast majority of financial institutions.

We asked decision makers from financial institutions across nine different countries whether it’s important for financial services and the banking sector to support ESG initiatives; 85% agreed with the statement, and also that it’s important for them to actively seek to improve in these areas. The fact that these results remain consistent with those from 2022, despite a difficult economic outlook in 2023, shows that support for ESG is strong even with the constraints that have been placed on technology investment budgets over the last year.

Linked to this, there is a strong perception that ESG-focused finance can benefit both financial institutions and communities. At a global level, four in five (79%) agreed that a focus on ESG and sustainability will be the next big disruptor in the sector. Specifically, 82% agree that ‘green lending’ provides an opportunity for growth and revenue generation.

While it’s important to see banks adding more green assets to their books, this alone is not enough. Banks can really make an impact by helping their entire lending portfolio – including companies in the ‘mighty middle’, which are neither leaders nor laggards – to become greener. This segment makes up around 70% of most banks’ loan books, making it a crucial area to prioritize given the impact it can have across the world.

Another crucial step is the promotion of sustainability-linked loans, which emphasize the importance of companies improving themselves over time, irrespective of whether they are inherently green or pollutive.

Technology is a key enabler for the measurement and delivery of ESG, green finance and sustainability-linked loans, and there’s increasing recognition that accelerating the delivery of ESG goals will be a crucial component of long-term value creation, boosting economic recovery and overall economic performance.

More collaboration between financial institutions, fintechs and regulators can help accelerate progress, with fintechs bringing their expertise in areas such as data management, analysis and reporting, and regulators being more prescriptive in standardizing and advocating best practice.

The potential of emerging technologies like generative AI (Gen AI) to assist in the accurate and efficient capture of ESG data is huge. Indeed, our research shows that financial institutions’ investments in Gen AI align well with their commitment to ESG. When we asked decision makers at financial institutions about use cases for Gen AI, the highest number of respondents (36%) said they are either using or plan to use it to help collect and analyze ESG data for criteria classifications or to support decision making. With ESG and sustainability a firm fixture on the boardroom agenda, the ability for generative AI to extract information from unstructured data, including often-fragmented ESG data sources or siloed IT systems, is seen as a very compelling use case.

In summary, the industry shows no sign of deprioritizing commitments to ESG in fragile economic conditions, regardless of cost constraints. Moreover, there is optimism that advances in technology will enable organizations to make significant progress towards their ESG objectives. By partnering together, all stakeholders can help accelerate progress. After all, there’s no time to lose!