Data sharing is key to designing financial instruments and creating demonstrable Net Zero results, noted Gavin Starks, CEO of Icebreaker One, in a FinextraTV interview.
One of the biggest hurdles to achieving Europe’s net-zero emissions target by 2050 is establishing the infrastructure needed to share environmental and financial data, and use it as a continuous flow of information that informs climate-aware risk management, climate-credible deployment of robust, long-term solutions, and climate-ready financial instruments.
Gavin Starks, CEO of Icebreaker One, is working to meet this very challenge – ensuring data can be utilised across the financial services industry to help mitigate climate change. “The project is about creating the wiring and the rails, if you like, that facilitate data exchange”, explained Starks in a FinextraTV interview.
Ultimately, Icebreaker One’s goal is to influence investment decisions of $3.6 trillion a year in order to deliver net-zero by 2030.
Opening standards
Improving access to data will help businesses and the public sector innovate when it comes to climate action. This is a proven blueprint. With UK Treasury backing, for instance, Open Banking facilitated secure access to shared financial data, and has since transformed the fintech sector – creating tens of billions of pounds in value.
A similar ‘pooling’ of data is needed to help us reach net-zero emissions targets, said Starks. “When it comes to energy distribution in the United Kingdom, for instance, we have large power stations, innumerable wind turbines, and countless microgeneration solar panels. At the consumer level, there are smart meters, too. So, in practice we’ve got millions of data bits flying around at any given moment, within a highly complex ecosystem. The breadth of available information is increasing exponentially.”
This will create challenges in the future for the UK. For example, how will local authorities digest the data effectively, in order to plan the installation of environmentally friendly heat pumps? How will they know whether there’s enough capacity on the local energy grid, and what the transmission constraints are? Bringing all the necessary information together is, and will be, incredibly complex. Clearly, improved access and sharing of the relevant data is essential to country-level sustainable transitions, and to delivering the green industrial revolution.
To make this happen successfully, the public sector and regulators will need to work together with the industry to provide the necessary funding and legislative changes. For Icebreaker One, the first step will be working with the government to develop Open Standards that will unlock access to shared data. “First, we must make data available to everyone”, said Starks. “This is known as open data – which itself is data anyone can use, for any purpose, for free.”
The end-goal for Starks and his company is to create a sizeable ecosystem, enabled by open banking, that pulls together the data from various sectors. This would mean, for instance, stakeholders can get holistic information from the energy, transport, agriculture, and water sectors, and thereby design financial instruments that catalyse the UK’s progress toward the net-zero target.
Technology versus culture
The example of Open Banking is proof that the technology and infrastructure needed to share data is already at the industry’s fingertips. Indeed, there's now hundreds of fintech companies operating within the open banking system, and millions of people are using it to help them manage their own personal data.
The real challenge, however, is facilitating the cultural shift to further encourage a healthy data exchange between sectors – thereby informing sustainable capital allocation decisions. “Often, data is treated as a technology problem”, said Starks. “But we've had the technology for data sharing for decades. The web, for example, is the most successful information architecture in history, with billions of websites, and hundreds of billions of bits of information flying around at once. It's also incredibly ubiquitous – over half the world's population have access to the web.”
So, the real question we must ask is not what the technology needs, but what its users need. How can data sharing be encouraged?
A cultural evolution will be key, argues Starks. “Over 15 years ago, I set up a company that measures carbon footprints. We aggregated the world’s various carbon emissions reporting standards and calculation methodologies and plugged them into our proprietary engine. This enabled clients to enter, for instance, 100 kilograms of steel, and our engine would provide its carbon impact against all methodologies in the world.” Unfortunately for Starks, this project highlighted the fact that merely having access to data does necessarily drive the behavioral change that is required.
To avoid what Starks referred to as the “what’s in it for me?” competition that often comes with data sharing, Icebreaker One’s vision is the creation of a data marketplace that is scalable, just like the web. “With the web, they didn't start by saying, when you build a website, you've got to insert a copy of it into our portal”, noted Starks. “They said, build your website, publish it online, and then we can build a search engine to find it.”
This is the model Icebreaker One is using to develop its open energy programme – a energy data search engine. This new national service, available in the UK, is being used as the blueprint for sustainable development in the energy sector. “Our call to action is for energy sector companies to publish metadata, in a readable format, that we can find”, said Starks. “We can then index it and make it searchable in the same way you would use Google.”
Robust regulatory frameworks
However, discoverability is merely phase one of the effort. Once the industry moves to a fully Open Data model, robust regulatory frameworks will be required.
There are already some initiatives which promise to drive data flow. “The creation of the Task Force on Climate-related Financial Disclosures (TFCFD) – which UK is now signed up to – is a positive start”, said Starks. “However, its annual reporting requirements are somewhat retroactive, and there is not enough standardisation when it comes to data inputs. Generally speaking, I don’t think the data-related challenges we face can be solved by a single platform approach, or even by creating a common reporting frameworks, such as the Carbon Disclosure Project (CDP).”
Indeed, there are less than 10,000 organisations that report to the CDP. So, the questions that remain are: How do we scale this up to over 200 million companies in the UK? How do we source disclosure and reporting data, and digest it into machine-readable data, in a secure way? If these questions can be answered, the financial services industry will achieve a far better, and dynamic, risk pricing process.
Once again, notes Starks, Open Banking serves as a successful example to follow: “We need to build on similar principles as Open Banking – enabling organisations in the ecosystem to connect with each other in an efficient and secure way. We formulated the Icebreaker One project in alignment with advisory groups and industry specialists, specifically, in order to help us understand what both the user’s and market’s needs are.”
Keeping the lights on
For many of us, the 2020s are the decade for climate action – the “make or break” stretch to achieving net-zero. In some ways, the pandemic slowed down promising efforts that would have otherwise supported Europe with this goal.
Looking ahead, Gavin Starks believes the key to meeting the net-zero target by 2050 is improving information flows between sectors, which will in turn inform evidence-based climate change mitigation decisions. As ever, the true value of data comes from connecting it.
There is, however, a lot of work to do still. The Open Data effort must be powered by robust regulatory initiatives that keep the economy running smoothly. As Starks pointed out, it is not like Netflix, where if a few films are lost, customers get frustrated. When it comes to energy, it is literally keeping the lights on as we scale to net-zero. A wrong step could mean systemic failure.
Issues surrounding access to climate data will be explored in further depth at Finextra’s upcoming event, Sustainable Finance.Live, from 11th-12th May. Click here to register.