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Sustainable Finance with Technology Enablement and Risk Protection

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27 June 2020
Max Ang

Sustainable finance refers to any form of financial services integrating environmental, social and governance (ESG) criteria into the business or investment decision relating to ESG initiatives, with long-term benefits for both the business and society. The topic of ESG is more pertinent in recent times, where there are increase focus into sustainable technology for products and investments, promoting business longevity and supply chain maintenance.

According to the United Nation Sustainable Development Goals[1], the path to a sustainable future will involve initiatives that seek to reduce poverty, inequality, climate change, environmental degradation and promote overall harmony in the world. As such, ESG initiatives should seek to create a better world through corporate action for the benefit of society.

On the other side of the coin, there are ESG controversies, when a business decision has unintended and undesired negative environmental and social effects, with corresponding reputational risk for the business.

Good ESG initiatives can build a business reputation with sustainability principles, sowing positive investments opportunities from potential investors. ESG mentions in news articles are reviewed by analysts, whereby investors are being alerted to potential controversies or be made aware to a business with positive ESG leadership. However, this process of news articles review is time-consuming if done manually.

Technology Enablement

Through the application of machine learning and natural language processing (NLP), the news articles review process is streamlined, and news stories are triage for potential ESG controversies. Refinitiv Labs optimized the time-consuming news articles review process through Google open-source NLP model, BERT, which aide in identifying ESG metrics and ESG-related keywords about a specific company. This process of automated document classification enables an analyst to direct attention to specific articles for further ESG controversies review, reducing time spent on manual news articles search and reading activities. This is especially crucial in identifying and supporting businesses with commitment to ESG and calling out those who do not, in a bid to create a sustainable future. Going forward, humans can be assisted with such AI-enabled solutions, promoting humans to higher-level tasks over routine tasks.

Besides automation for ESG-related tasks, technology can also enable better access for education, finance advisory and healthcare with the increased usage of tele-conferencing tools, IoT application and internet penetration.

ESG Culture and Risk Protection Insurance

The pandemic period has highlighted the provision for high-impact/high-consequence events and business continuity plans. The push for innovation initiatives has accelerated as well, as highlighted in ‘Pushing Boundaries in Moving Times: Digital Contracting and Beyond’.

Insurance protection should extend beyond business continuity but towards incorporating ESG elements into underwriting models for more comprehensive risk protection offerings. The events of the pandemic have identified and promote greater initiatives for renewable energy, clean water and sanitation, food security and agricultural technology, stronger healthcare infrastructure and disaster-recovery and resiliency for smart and sustainable cities of the future.

For a Sustainable Tomorrow

Companies’ financial performance are important, but companies will need to incorporate intangibles such as human capital philosophy, intellectual property, brand values into their overall strategy, with ESG principles at the core.

Technology and ESG-centric risk protection will enable sustainable goals for quality education, social mobility, job opportunities, gender equality, food and water sustenance, climate and infrastructure protection. This leads to sustainable finance and investing decision into sustainable companies, that will not only do investors good but secure and sustain future generations to come.

[1]https://www.un.org/sustainabledevelopment/sustainable-development-goals/