Beyond PR: Embracing the Power of ESG Tech in the Banking Industry
Environmental, social, and governance (ESG) considerations have become central to businesses across industries in recent years, as companies recognize the importance of ESG. The banking industry is no exception, as financial institutions grapple with the challenge of integrating ESG into their operations while delivering value to their customers and shareholders.
Incorporating ESG considerations in a responsible manner can present an opportunity not only to advance sustainability goals but also to increase profitability.
Despite the growing importance of ESG considerations, many banks are currently only focusing on the PR layer of their ESG initiatives.
One way that banks can leverage ESG tech is through partnerships with startups. Startups are often at the forefront of innovation and can bring fresh perspectives and cutting-edge solutions to the table and save time compared to internal development.
Here are a few practical examples of ESG Tech in the banking industry:
Software solutions based on artificial intelligence (AI) technology that assesses the climate risk of companies in a bank's investment portfolio. These kinds of solutions can analyze the financial impact of climate-related events and calculate the potential financial losses that could result from those events, enabling banks to make more informed investment decisions that take climate risk into account.
Another example is ESG vendor scoring software that can help banks evaluate the ESG performance of their vendors. The software analyzes a range of ESG factors, such as carbon emissions, labor practices, and diversity and inclusion policies, to provide a score that can be used to make more informed decisions about which vendors to work with.
These solutions can help banks incentivize vendors to improve their ESG performance and align with the banks' values, creating a ripple effect in the supply chain and aiding regulatory compliance such as the EU’s SFDR (Sustainable Finance Disclosure Regulation)
ESG tech is also being used to improve the sustainability of banking operations themselves. For instance, solutions that use blockchain technology to track the sustainability of the supply chains of banks and other companies. By using these kinds of solutions, banks can monitor the environmental and social impact of their suppliers and ensure that they meet the bank's ESG standards.
It's time for banks to take concrete steps towards integrating ESG into their operations, not only because it's the right thing to do, but also because the technologies necessary to do so are already mature enough
ESG tech can undoubtedly be a powerful tool for the industry, but it's crucial to keep in mind that not all technology solutions are equally effective. Before collaborating with any ESG startup, banks must conduct a thorough evaluation to ensure that the technology aligns with their organizational goals