ESG data readiness drives value for financial services firms

Globally, the financial sector continues to meet environmental, social, and governance (ESG) market forces with innovation in their sustainability-focused lines of business—especially green investing. With 78% of investors willing to pay higher fees for ESG funds that may offer higher returns,¹ consumers and shareholders are eager to take advantage of these options. And among millennial and Gen Z investors, 85% prioritize using asset management to influence corporate environmental practices, even if that would risk a decrease in investment value.²

At the same time, individual financial services firms may encounter a risk of disconnect with these stakeholders, primarily due to challenges and questions around disparities between firms’ presentation of their sustainability products, and the accuracy of the ESG data that underlies those products.

Meanwhile, firms seek to comply with increasing ESG regulations and standards. And they need to meet, and ideally exceed, internal targets for sustainability progress in their own operations.

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Accordingly, the financial services industry is facing a complex constellation of challenges, with hurdles between the current state and the gaining of comprehensive ESG data insights—against a backdrop of confusion and intense competition.

But once firms begin their data transformation journey, they’re increasingly well set to leverage data technology to drive meaningful value, from creating audit-ready ESG products to harnessing AI for advanced risk modeling.

Positioning ESG data as a driver

Microsoft knows firsthand the value of integrating ESG data with financial, operational, and other enterprise data. Without a connected and systemic view, firms lack holistic insight into equities, loans, or insured assets, leading to a competitive disadvantage.

As we’ve worked over the last two decades to untangle and solve challenges at Microsoft in support of our own ESG data estate—and to drive on our sustainability commitments—we’ve regularly turned to experts in the field and endeavored to share our learnings. In taking solutions forward to our global customer base, we’ve seen that for financial services firms, the development of a comprehensive ESG data estate can advance speed to market as well as credibility of products. For example, Robeco, a Dutch international asset management organization, can now perform daily data updates for all its sustainable investing solutions—staying laser-focused on returns, but with audit-ready confidence and ESG transparency.

Priorities for financial organizations translate to inroads in the development of an ESG data estate. For example:

Advanced data integration: Develop more sophisticated tools and systems to integrate ESG data seamlessly along with quality governance to inform comprehensive analyses and outcomes.
Sustainable and ESG investing and lending: Use data analytics to better identify and expand portfolio-level ESG assessments for risk and performance management.
Responsible allocation of transition capital: Help corporate clients achieve their sustainable transition goals through data-driven decision making.
Carbon credit markets: Support carbon trading initiatives with robust data management systems for tracking and reporting credits and trading activities.
Risk modeling modernization: Leverage AI capabilities to enhance risk modeling practices used in underwriting, pricing, and loan assessments.

High-value initial steps toward ESG data readiness

Just like with data security, developing an ESG data estate in a financial services firm doesn’t happen in a single effort. Instead, your firm can benefit from taking a customized approach based on your current data state, regulations, and data governance policy, and desired outcomes as you identify opportunities.

Depending on the maturity of your existing data infrastructure, your organization may want to consider starting within one, or a mix, of these areas:

Data gathering

Develop a plan for integrating ESG data into your portfolio’s due diligence and risk analysis.
Standardize a process for collecting and updating ESG data—from both internal and external sources.

Data modernization

Leverage digital capabilities to deliver new financial products to market.
Enhance financial data compliance, governance, and security.

Data insights

Implement comprehensive ESG training for your customers to support effective analysis and decision-making, with industry-specific components.
Develop an AI-powered data system for accelerated ESG analysis tailored to your clients’ needs.

Data action

Develop advanced ESG data systems to pinpoint data gaps and data accuracy risks.
Align your decision-making and strategy to complete and accurate data.

Advancing your sustainability journey with Microsoft AI-powered solutions

We see enormous potential for financial services firms to tackle risks and capitalize on opportunities driven by sustainability, for themselves and their clients, and we believe comprehensive, harmonized, accessible data is the key.

With cloud-based data capabilities, including Microsoft Cloud for Sustainability, Microsoft Fabric, and our AI-powered data solutions, we can help you shift from siloed data and labor-intensive processes to streamlined management that results in timely ESG insights and transparent reporting out to stakeholders—all with Microsoft security and governance.

Once firms gain comprehensive management and insights into their ESG data, the potential for new and enhanced client services quickly follows. For example, United States-based economics research firm Moody’s leverages Microsoft Fabric solutions, AI-powered insights, and Microsoft Security to enable their 14,000 global employees to drive innovation for clients. In the United Kingdom, the London Stock Exchange Group (LSEG) selectively deploys generative AI to augment their existing work in Microsoft Fabric with custom chatbots and agents copilots.

Empowering the financial services industry for sustainability success

We know that for us to do well, our customers and the world must also do well. Our mission is to empower every individual and organization on the planet to achieve more, by building technology that can deliver business value to our customers, and positive impact to the world.

Wherever you are in your sustainability journey, we’re here to partner with you—delivering continuous innovation from our solutions teams and our global ecosystem of partners, as we expand our ESG data readiness capabilities to help meet your unique needs in a world that is shifting quickly.

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