Overcoming data hurdles
The EBA has recognized institutions’ challenges around ESG data management, specifically from their counterparties.
The disclosure of ESG risks presents two opportunities for banks. First, they can evaluate their own business models, lending activities, and risks. Second, it is an opportunity for due diligence and responsible engagement to help counterparties transition and mitigate climate risks.
To comply with this regulation, institutions’ board of directors must prioritize and incentivize identification and coordination among cross-functional teams to build data systems, frameworks, and processes to collect, verify, and assure data. Banks must prioritize embedding capacity-building measures to address ESG data challenges among smaller corporates, SMEs, and retail clients due to institutional capacity and know-how.
To that end, banks must leverage AI-backed ESG solutions and advisory services to align their portfolio with EU taxonomy, generate investment insights, and calculate the carbon footprint for SMEs. They must digitalize the energy-efficient mortgage process by leveraging cognitive technology and assess financial losses from climate change to assets and investments. This will enable the European banking sector to address roadblocks and meet regulatory requirements in a cost-effective and quality-assured manner. It will help clients demonstrate internal accountability, foster transparency, and restore trust among sustainable market participants while banking on new business opportunities to transition to a circular economy.
