1 October 2024

Turning ESG data management from a challenge into a strategic advantage.

Philip van den Emster closely monitors the role of ESG data, specifically within the banking domain. Within Varrlyn, Philip is lead of the value stream Digital Services.
He feels safe to say that there is no better time for banks to reclaim their position as relevant industry leaders as they are able to unleash the power of their ESG data. How to get there? Philip van den Emster has his own point of view.

Environmental, social, and governance (ESG) factors have quickly become a top priority in the banking world. They’re no longer just a side issue—they’re now crucial for shaping strategies, managing risks, and finding new opportunities. With tighter regulations, investors wanting clear returns, and customers demanding ethical and diverse products, banks need to weave ESG considerations into their core operations. But here’s the catch: many banks are struggling to manage ESG data effectively, which puts them at risk of not meeting expectations and missing out on the benefits that ESG can bring.

The Problem: Messy ESG Data Management

Unlike traditional financial or customer data, ESG data is often all over the place—scattered across different departments, inconsistently labeled, and without a clear owner. This disorganization not only drives up costs and risks but also leads to missed opportunities. ESG data is complex, covering a wide range of metrics like carbon emissions and workforce diversity, and it often comes in unstructured formats. Despite its growing importance, most banks don’t have the right systems in place to manage ESG data smoothly.

A Way Forward: Getting a Hold on ESG Data

Banks need to take a more organized approach to managing ESG data, and the good news is that they don’t need to completely overhaul their systems to do it. By creating an integrated data platform, banks can turn ESG data from a headache into a strategic advantage. Here is how:

1. Create a Clear ESG Data Strategy: Many banks have general ESG strategies, but often lack a focused plan specifically for ESG data. It’s important to assign clear ownership of this data, ideally under the leadership of the chief data officer, chief information officer, and chief sustainability officer. This leadership ensures that ESG data is used effectively across all relevant areas, from risk management to pricing strategies.
2. Design the Platform Around Key Use Cases: The ESG data strategy should focus on a core set of use cases, such as regulatory compliance, sustainability reporting, and green finance initiatives. By concentrating on these key areas, banks can create efficiencies that reduce rework and IT costs while improving data standardization and reuse.
3. Build for Flexibility and Future Growth: The ESG data platform should be scalable to grow with the bank’s evolving needs. A holistic, integrated, and modular architecture allows banks to centralize the ingestion, processing, and management of ESG data, ensuring the platform can adapt as ESG standards and requirements evolve.
4. Improve Data Governance: Effective ESG data management requires updating existing data governance frameworks to handle new types of data, including unstructured information and external sources. Strong governance ensures data quality, which is crucial for accurate reporting and analytics, especially as regulatory scrutiny increases.

Taking Action: Start Small, Move Fast

Implementing an ESG data strategy doesn’t have to be overwhelming. Banks can start by defining a target state, launching initial use cases, and gradually building the data foundation. With the right focus, banks can develop a working ESG data platform within months, putting them ahead in an industry where ESG is becoming a key differentiator.

Conclusion: The Time to Act is Now

The banking industry is at a turning point. ESG factors are changing the game, and how banks manage ESG data will be critical to their success. By getting serious about ESG data management, banks can not only meet regulatory and customer demands but also use this data to drive innovation and sustainable growth. Now is the time for banks to act, turning ESG data management from a challenge into a strategic advantage.