Regnology believes that ESG should be at the centre of a company\u2019s activities, from finance to risk departments and credit ratings. A good ESG data strategy is key to this.<\/p>\n
What is the current status of ESG reporting?<\/p>\n
The industry is currently in a \u201cmarket frenzy\u201d when it comes to ESG and data reporting. That\u2019s according to Bodo Windm\u00f6ller, senior vice president product management at Regnology.<\/p>\n
\u201cMore than 30 regulatory bodies and standard setters in 12 markets have undertaken some sort of official consultation on ESG. We are seeing a lot of buzzwords flying around and it\u2019s a bit overwhelming to make sense of the flood of new mandates and proposals.\u201d<\/p>\n
A good place to begin is to consider the objectives of ESG reporting. As it currently stands, the majority of proposals in this area are looking to enable transparency, but Windm\u00f6ller said that some are beginning to go further than this and looking to create a behaviour change and influence market dynamics. This is a particularly prominent trend in the EU.<\/p>\n
In terms of the stringency of compliance requirements, the EU is leading, Windm\u00f6ller said, this area is somewhat weaker in the US and Canada. Turning to the uniformity of ESG reporting, Windm\u00f6ller continued, the EU is following a \u201ctemplate-based\u201d approach that is seen in other reporting areas.<\/p>\n
Materiality and the divergence of standards<\/p>\n
Materiality is a particularly hot topic in the ESG data reporting space. In the context of ESG, this refers to the effectiveness and financial significance of a specific measure as part of a company\u2019s overall ESG analysis. Companies and governments must determine what ESG issues are significant for their organisation and how those impact the business.<\/p>\n
This is not the only area in which ESG reporting varies. There is also the question of the outside-in perspective versus the inside-out perspective, also referred to as single and double materiality. Windm\u00f6ller explained this issue essentially asks: is it a case of reporting how changes in the environment will affect certain companies or how certain companies affect changes in the environment?<\/p>\n
\u201cThere is a huge variety in what ESG comprises. Some regulation concentrates on the E side, others look at the S and G elements,\u201d Windm\u00f6ller said. Even just considering the E side, there is disagreement over whether this should include climate mitigation or prevention of climate risk, and whether other factors such as biodiversity should be included.<\/p>\n
Could Europe become a standard setter?<\/p>\n
It is widely recognised that there is a lack of a uniform standard for ESG data and reporting; the EU is trying to change this and become a standard setter.<\/p>\n
However, according to Erik Becker, Regnology product director, the issue of double materiality and the outside-in perspective versus the inside-out perspective could present an obstacle to achieving this. This is because the US is focusing more on double materiality.<\/p>\n
Following on from this, Windm\u00f6ller added that although the EU is trying to become a standard-setter, \u201cthey are probably reaching too far for many other jurisdictions, and this will likely prevent convergence.\u201d<\/p>\n
Beyond this, Windm\u00f6ller said we don\u2019t currently have the political mechanisms to even create a uniform standard. Nevertheless, we will see an emergence of a standard within Europe in the near future, \u201cThe question will be: how much of that standard will actually happen worldwide, or will this be fragmented?\u201d<\/p>\n
The consequences of fragmentation<\/p>\n
From the investor\u2019s perspective, fragmented standards in ESG reporting means there will be a lack of comparability. \u201cThat\u2019s going to be a hinderance in terms of enabling the climate transition to happen,\u201d Windm\u00f6ller said.<\/p>\n
Furthermore, this is going to be a headache for companies, Windm\u00f6ller continued. \u201cCompanies, especially international banks, will have difficulty communicating precisely on what they are doing, because they have to address so many different audiences with differences messages.\u201d<\/p>\n
This of course opens the opportunity for greenwashing, which can erode the credibility of ESG reporting and data. \u201cYou will probably always find regulation somewhere that allows you to tag whatever you have as green,\u201d Windm\u00f6ller said.<\/p>\n
What\u2019s more, Becker added, is that having no universal standard, means consumers are less likely to trust products or different companies, which in turns means that the positive impact ESG could have on climate change will be reduced.<\/p>\n
Lastly, Windm\u00f6ller explained, in the EU the goal is to transition from a \u2018brown economy\u2019 to a \u2018green economy\u2019, and that will require adjustments in where capital is spent. \u201cIf we do not see a standardisation across the world, the question will be how smooth such a transition will happen.\u201d<\/p>\n
Latest developments<\/p>\n
One of the key latest developments in ESG reporting is the new EU sustainable standard, the Corporate Sustainability Reporting Directive (CSRD). The EU is set to adopt the standard in October 2022, which will see an amendment to the previously Non-Financial Reporting Directive (NFRD). The CSRD is intended to support the European Green Deal, a set of policy measures intended to transform the EU into a modern, resource-efficient, and competitive economy.<\/p>\n
\u201cThis will make businesses more accountable to disclose their impacts on people and the planet. This will have a big impact,\u201d Becker said.<\/p>\n
Another development in this context, Becker continued, is a discussion about incorporating ESG risk drivers into the prudential framework. \u201cAt the moment we have mainly been talking about transparency and disclosure, but we are not talking about the impact on existing regulatory rations and the capital costs. That is a big discussion at the moment, which began from the Basel Committee for Banking Supervision (BCBS).\u201d<\/p>\n
How to incorporate these risk drivers in prudential frameworks is heavily disputed, Windm\u00f6ller said. There is a view that they are already incorporated, but on the other hand, there is an opposing view which proposed this is new. \u201cIn Europe in particular this is a political debate, because of the political agenda to transition to a greener economy\u2026it will be interesting to see where this discussion goes.\u201d<\/p>\n
So where does Regnology fit into all this?<\/p>\n
Regnology\u2019s mission is to enable transparency and stability of financial markets. Windm\u00f6ller said the company achieves this by providing products and services for regulators and the regulated; it counts several European regulators such as the Bank of England among its customers in addition to many of the largest banks in Europe.<\/p>\n
\u201cWhat we are doing is enabling the data flow from the regulated to the regulators, through technology, services and consulting. This covers statistical, financial and supervisory information. Millions of data points are being transferred using our products. And of course, we leverage this know-how and experience to support the industry with incorporating ESG reporting in their data flows.\u201d<\/p>\n
The company has positioned itself as a market leader in Europe. It boasts 50 regulators out of 200 worldwide, and a community of more than 7,000 firms worldwide which benefit from the company\u2019s software packages, platforms and advisory services.<\/p>\n
Copyright \u00a9 2022 FinTech Global<\/p>\n","protected":false},"excerpt":{"rendered":"
Regnology believes that ESG should be at the centre of a company\u2019s activities, from finance to risk departments and credit ratings. A good ESG data strategy is key to this. What is the current status of ESG reporting? The industry […]<\/p>\n","protected":false},"author":1,"featured_media":1989,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[38],"tags":[58,72,71,73,47,74,50],"yoast_head":"\n