According to a survey from the Asia-Europe Foundation published in 2015, to reach the 17 SDGs by 2030, a yearly investment of USD 5 to USD 7 trillion is required. To attain this level of investment, the financial industry will need to restructure itself to answer to the new sustainable conditions. There is, however, a challenge with regards to those new sustainable conditions: The financial industry is facing a lack of available and comprehensive data relative to SDGs and sustainability. The reason for this situation is that companies are not openly sharing about the impact of their operations on the environment or the society. Furthermore, the ones that are sharing about those elements usually use an internal methodology, reducing comparability among companies. This is translated into the financial industry by a shortage of sustainable investments since investors don’t have access to the tools needed to make transparent and informed decisions.
Definition
Digital sustainable finance refers to the inclusion of digital tools used for the integration of sustainability into the financial industry. This new approach could offer modern solutions to the financial industry and thus support its actors who are interested in sustainable investing. One specific aspect that could be interesting for investors is the ESG (Environment, Social, and Governance) data reports. This method is usually based on the aggregation of data from various sources to provide an overall sustainable grade to each company. By combining data from different actors, those reports can provide a transparent tool for customers. They can also increase comparison since they offer the same format for all their customers.
Case
The case of Refinitiv can be used as an example of how ESG data reports are redefining the status quo within the financial market. Refinitiv is a fintech company that provides various digital products to financial consumers who are interested in building their innovative strategy. One of their services focuses on ESG investing by offering complete ESG reports on 80% of all publicly traded companies. In order to offer this service, Refinitiv is aggregating data from various sources such as the company’s annual report, its website, NGO reports, CSR reports, in addition to 450 other data points to provide a more complete view of the ESG impact of a company. This new strategy appears to be functioning since, in one year, Refinitiv allocated 150 employees to work in this new segment.
Conclusion
Digital sustainable finance is an important improvement for financial investors since the challenge for sustainable finance is the lack of data relative to the ESG position of a company. Therefore, to help companies transition from a linear economy to a circular, inclusive economy, new data models and technologies are needed. There is still a lot to do in order to reach the USD 5 trillion needed yearly. However, ESG investing is becoming more and more attractive to investors thank to the use of digital tools and data analytics.
References
https://www.refinitiv.com/en/sustainable-finance/esg-investing
https://www.weforum.org/agenda/2020/01/sustainable-finance-starts-with-data/
Asia-Europe Foundation (2015), Who Will Pay for the SDGs?, ASEF
