Interview with Stella Fau Clarke

In your opinion, how can firms better align themselves to meet climate goals?

Financial institutions (FIs) play a pivotal role in driving sustainable development and helping society transition to a low-carbon economy. To better align themselves with climate goals, these institutions should embrace a multifaceted approach, focusing on three key areas: risk management, investment strategies, and collaborative action.

Firstly, FIs must enhance their risk management frameworks to incorporate climate-related risks and opportunities. This entails conducting rigorous assessments of their portfolios to identify and address climate-related exposures, ensuring transparent reporting, and integrating climate considerations into their decision-making processes. By understanding and proactively managing climate risks, these institutions can safeguard their own financial stability while contributing to a more sustainable future.

Secondly, adopting sustainable investment strategies is crucial. FIs should allocate capital to support environmentally responsible initiatives and renewable energy projects. By providing financing and capital to climate-friendly enterprises, they can help accelerate the transition to a greener economy. Implementing robust environmental, social, and governance (ESG) criteria in investment decisions will further align portfolios with climate goals.

Finally, collaborative action is paramount. FIs should collaborate with governments, international organisations, and other stakeholders to drive collective efforts towards achieving climate objectives. This collaboration can involve sharing best practices, developing innovative financial instruments, and advocating for supportive policy frameworks that incentivise sustainable practices. By working together, financial services institutions can amplify their impact and contribute to the systemic changes needed to tackle climate change effectively.

What are the greatest challenges they currently face?

Recent statistics from a Fenergo poll of global FIs highlights that just 10% of executives would consider their firm to be fully prepared to meet ESG obligations. 40% are either ‘poorly prepared’ or entirely unprepared. This reveals the genuine concerns that firms have regarding their ability to deliver on ESG commitments for their stakeholders.  

As sustainability and responsible investing gain prominence, FIs are grappling with the need to translate ESG rhetoric into actionable strategies that yield meaningful results. The pressure to align with evolving regulatory requirements, while satisfying the expectations of customers, investors and stakeholders weighs heavily on institutions.  

How can FIs fulfil ESG obligations in an overwhelming regulatory environment?

Technology is pivotal in helping FIs make sense of ESG compliance and make processes as simple as possible. Don’t silo. Reuse data from across your network. There are lots of external ESG tools to benchmark against, which helps with due diligence, and build ESG into your operating model all the way through the customer lifecycle — from onboarding to review. Key considerations are as follows:

• Synergies between AML/KYC data and processes mean FIs can easily absorb ESG into existing Client Lifecycle Management (CLM) Frameworks
• As a starting point, much data can be reused from KYC to jumpstart ESG, including Nature of Business, Industry Codes and even the Board of Directors
• Leverage major ESG data providers to enrich client and supply chain profiles as much as possible through Application Programmer Interfaces (APIs)
• It is crucial to ensure ESG and KYC/financial crime are not siloed. Leverage people, data and resources to create integrated reporting structures that centralise the entity in the process, whether we’re looking at them from an ESG or KYC lens
• Use proprietary rating methodologies to automatically rate and classify the client, escalating to specialist “ESG- Regulatory Officer” type roles for exceptional cases
• The automation and repurposing of data, coupled with the leveraging of CLM operating models, deliver significant operational efficiencies and cost savings

Why is it important for FIs to automatically calculate climate and reputational ESG risks and their supply chains?

Automation brings the ability to respond to changing policy quickly, avoids breaching regulations and streamlines the whole compliance processes, while minimising the need for human intervention. Technology allows FIs to streamline data capture for their clients and visualise supply chain hierarchies before applying ESG ratings.

By adopting automated risk assessment mechanisms, FIs can swiftly identify and analyse potential ESG vulnerabilities across their supply chains. This proactive approach enables effective risk mitigation, ensuring long-term sustainability and resilience. Additionally, automating these calculations enhances transparency, boosts stakeholder confidence and helps institutions navigate the evolving ESG landscape, thereby maintaining their competitive edge and contributing to a more sustainable future.