Ideas from the Speakers
Sustainable finance refers to financial practices that incorporate environmental, social, and governance (ESG) factors into investment and financing decisions. As the demand for sustainability-driven investments increases, understanding the complex data requirements becomes essential to advancing sustainable finance.
The panelists began by discussing what types of data are useful and their intended purposes. One speaker focused on climate data, noting that the biggest challenge is obtaining primary data directly from corporate clients and customers. This data is crucial for accurately measuring emissions within financial portfolios.
Another speaker emphasized the importance of forward-looking transition data, which predicts financial outcomes and shows how companies plan to reduce emissions and transition to sustainable practices. Access to granular product-level data, critical for financing clean-tech initiatives in small and medium-sized enterprises, remains limited as it is often collected by national statistics offices. Making this data more accessible could significantly improve financing decisions in the transition to a low-carbon economy.
One speaker differentiated between data for disclosure and decision-making. For disclosure, the key challenge is explainability, ensuring transparency about the origin and accuracy of data. For decision-making, particularly in steering portfolios towards net-zero targets, accuracy is critical. Furthermore, a shift from generalized top-down data to precise bottom-up data, such as company-specific emissions, reduces errors and supports real-time, effective decision-making in sustainable finance.
A speaker underscored the role of regulation in standardizing sustainability data. Regulations establish methodologies for emissions measurement and reporting, as companies often disclose only selective information. Examples from the automotive industry, such as emissions disclosure for electric vehicle infrastructure, illustrate how regulations create public registers, ensuring transparency and allowing banks to make informed financing decisions.
The discussion then shifted to the opportunities and solutions being developed. The experts highlighted the transition from voluntary to mandatory reporting frameworks. The Partnership for Carbon Accounting Financials initiative, created in 2015, began as a voluntary effort to address data gaps in measuring financial emissions. Over time, regulations like the Task Force on Climate-related Financial Disclosures (TCFD), the Economic Value Added (EVA) financial performance metric, and International Financial Reporting Standards (IFRS) have driven the financial sector to obtain more accurate data. Despite challenges in accessing physical risk data, banks are developing tools, like ING’s Client Transition Plan Tool, to help clients create detailed transition strategies. A speaker emphasized the need for data that goes beyond targets and transition pathways, highlighting financing plans, capital expenditure, and funding strategies, such as blended financing (public and private investment for social or environmental goals) or project finance (long-term financing secured by a project’s future cash flows, commonly used for large infrastructure or energy projects).
The panelists stressed the growing need for financial institutions to collect and analyze data to support regulatory compliance and strategic decision-making. One highlighted that end-to-end integrated ESG data systems enable banks to track sustainability progress, assess investment risks, and make informed decisions using granular, up-to-date data. Another echoed the need for robust data infrastructure, noting that industries are required to disclose this granular ESG data to meet regulatory and investor expectations. While Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company) emissions are relatively straightforward to measure, complexities can arise during transitions, such as shifting from coal to renewable energy, which may lead to the reclassification of emissions. Scope 3 emissions (all other indirect emissions that occur in a company’s value chain), covering the entire supply chain, remain the most challenging to measure due to their complexity and lack of transparency.
Although the experts highlighted different challenges and solutions related to sustainable data, based on their areas of expertise, they all agreed on the need for a system-wide approach. A more integrated data system streamlines the process and makes the data necessary not only for compliance but also for managing risk, setting limits, and informing commercial decisions within banks.
Insights from the Audience
The audience raised important questions about how to measure the impacts of sustainable finance in both developed and developing nations as well as concerns about the reliability and centralization of the data used. The complexity of linking actions to impacts was highlighted, especially due to the involvement of diverse stakeholders particularly in the Global South. The panelists offered solutions like the development of centralized data repositories, namely the European Single Access Point, and discussed how similar systems could be adapted for emerging markets. Piloting should serve as a starting point, with initiatives aimed at building the capacity of local investors and companies to effectively collect, measure, and report sustainability data. SEDEX, a data exchange platform for smaller companies, was mentioned as a model that could be adapted to support supply chain sustainability assessments in the Global South, enabling these regions to leapfrog traditional Western approaches.
On the topic of funding and implementation, an important point was the influence of regulatory standards set by larger economies like the EU, which often trickle down to developing nations, though with some delay. However, they noted the need for tailored strategies that reflect differences in data quality and repository infrastructure. Collaboration among policymakers, tech companies, and financial institutions is key for driving innovation and improving data reliability.
In conclusion, the discussion made clear that overcoming data challenges is central to unlocking the full potential of sustainable finance. Reliable, granular, and standardized ESG data is not only essential for regulatory compliance but also for making informed, forward-looking financial decisions that support a just transition to a low-carbon economy.
