Using Automation to Drive ESG and Sustainability in Banking and Financial Services

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Banking and Financial Services

ESG is an acronym that stands for environmental, social, and governance. It refers to using those three factors to measure the ethical impact and sustainability of a company or business. A large number of socially responsible investors look at companies using ESG criteria before deciding whether to invest or not.

Central Factors of ESG

There are specific criteria associated with each part of ESG, which companies should be aware of if they want to fall within the appropriate grounds to be considered by certain investors.

For instance, environmental criteria mostly look at how well a company acts as a steward to the natural environment. Thus, an investor might focus on climate change, waste and pollution, deforestation, resource depletion, and greenhouse gas emissions.

The social criteria revolve around the way a company treats other people. This includes things like health and safety, conflict, diversity, employee relations, and working conditions. It might also delve into how a company helps out in the local community by serving underserved populations and funding important projects.

The final criteria fall under governance and are based on how the organization is governed. The criteria under this level include the structure and diversity of the board, tax strategy, corruption and bribery, executive remuneration, and political lobbying and donations.

The Recent Urgency of ESG Compliance

Meeting ESG compliance is something that many companies are working on. It goes beyond offering great public relations. Many organizations are in a position where they can’t afford to get it wrong. Oversight of ESG by the United States Securities and Exchange Commission and the European Union are steadily increasing.

In addition, shareholders are putting pressure on corporate boards to focus on sustainability and ESG. Right now, the stakes are high and compliance can be challenging.

For example, let’s say a company wants to become more efficient and track its energy consumption. It sounds simple, but the process involves major data collection and analysis across many locations and sub-entities.

On the other hand, a financial institution focusing on green financing will need to track supply chain activities, clients’ field operations, carbon emissions, and hundreds of other variables. Just the process of acquiring and analyzing vast amounts of data is a huge job.

This kind of work can be hard to do and errors are common. However, the process of automation can make it simple.

Automation Use For ESG

People in banking and financial institutions can fulfill their responsibility toward ESG and create a reality. Software bots can often handle a large part of the workload associated with complying with ESG. What makes it even better is that many of these financial institutions already use some of those software robots.

For example, one bank might use automation to manage customer processes and digitize loan documents to cut down on the need to use paper. Another could automate their process requests associated with postponing the repayment of loans for those impacted by COVID-19. Others use automation to cut down on time needed to onboard new clients from over 10 minutes to less than one.

These are only a few examples that show how financial institutions like banks are skilled at finding innovative ways to use automation for the good of everyone, to reducing cloud computing infrastructure by 65% and creating carbon footprint calculators.

And when it comes to ESG, automation is also an excellent way to ensure compliance.

ESG Crosses All Industry Lines

While banking is the first thing that comes to mind with ESG compliance, companies in every industry are making commitments to do better. These companies are also discovering that automation is the best way to create compliance, especially in terms of auditing and reporting.

Automation can help a company monitor and then report any ESG risks related to their investment and lending portfolios. In addition, robots can see how a company performs using key performance indicators (KPIs) for ESG.

This means tracking progress toward environmental targets like carbon emissions and social KPIs such as diversity in the workplace. In addition, automation makes it easier to report metrics related to cybersecurity, risk and control management, and employee conduct.

On the auditing side of things, workers have a lot on their plates. Adding in ESG compliance can make a packed list of duties burst at the seams. Automation can help in this area, too. It assists with many monitoring, sampling, and assessment requirements driving an ESG auditing program.

Many auditing teams have already chosen to use automation to help with data monitoring and collection. These same software robots can simplify and streamline ESG auditing, too.

How Automation Can Help in Banking and Finance Applications

Companies related to finances and banking have special challenges in terms of ESG. Thankfully, automation can make a huge difference in hitting compliance requirements.

With green finance, there are two primary questions to ask. Which organizations are in the ESG space for people to invest in and how well are these candidates for investment doing in meeting their ESG commitments?

In both situations, a lot of data must be considered for everything from supply chain relationships and carbon emissions to sustainability scores and other things. Automation makes this much simpler in terms of locating the information and then pulling it all together.

In terms of green mortgages, many banks offer lower interest rates or additional principal on loans for resource-efficient and environmentally responsible properties. However, extra documentation and checks are required for these properties to ensure they meet the lender’s requirements.

With automation, a lender can more easily verify data and ensure that a property meets all the requirements to be considered green.

ESG is also a part of shaping current investment strategies. Automation can help here too. A robot can pull information like annual reports and prospectuses to see if an investment complies with the ESG targets. They can also look at ESG scores, media reports, and sustainability analysis from third parties.

Artificial intelligence models can summarize all the information to give portfolio managers the information needed to make responsible decisions. ESG policies can help organizations do the right thing for the earth and automation can assist them in getting there.

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