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By: Stefan Malchow, Head of Sales, ESG Solutions, SAP Fioneer
With the OSFI Climate Risk Management Guideline B-15 coming into effect by fiscal year-end 2024, Canada’s banks and insurance groups are facing new legal obligations. For the first time, they must report reliable and verifiable sustainability data alongside financial information in shareholder or standalone reports.
As organizations transition from voluntary to mandatory ESG reporting, with responsibilities increasingly shifting towards the CFO’s office, they face challenges in disclosing accurate and verifiable data. These challenges often arise from a lack of standardized frameworks, inconsistent data quality, and limited access to reliable third-party data. Yet, the demand for sustainability disclosures that are as robust and reliable as financial disclosures is becoming increasingly critical, driven by the need to minimize greenwashing risks and ensure regulatory compliance.
To help financial institutions streamline ESG data orchestration, calculate KPIs and ensure compliance with evolving regulations, here are five best practices they should consider adopting:
1. Develop a centralized data strategy
Data is often scattered throughout an organization so centralizing ESG data collection and orchestration is essential for consistency and accuracy. A centralized approach with an integrated infrastructure for ESG data orchestration ensures that all data related to ESG metrics, from carbon emissions to physical risks, is brought together and captured in the same way across the organization. This reduces discrepancies and simplifies the calculation of KPIs, making it easier to meet regulatory reporting requirements. By developing a cohesive data strategy, organizations can streamline ESG data management, ensuring they are prepared for increasing regulatory scrutiny while providing stakeholders with clear, reliable, and actionable insights.
2. Aim for continuous improvement rather than a perfect start
When implementing ESG initiatives, striving for perfection from the outset can lead to delays and frustration. Instead, adopt tools and platforms that allow for a quick start, even with lower-quality or incomplete data. As the system matures, automation can enhance the data-gathering process, improving both the accuracy and quality of the information over time. Additionally, leveraging access to a broad range of data sources allows organizations to continuously refine their ESG reporting and decision-making, ensuring that they remain adaptive and responsive to regulatory changes.
3. Leverage best practice frameworks
Using established frameworks, such as the Partnership for Carbon Accounting Financials (PCAF), provides organizations with tried-and-tested methods for calculating financed emissions and other ESG metrics. These frameworks offer standardized approaches, enhancing transparency and allowing businesses to benchmark themselves against industry peers. By adhering to best practice frameworks, organizations can improve the credibility of their ESG reporting and create collaborative efforts across the industry, building a united front in tackling climate-related challenges.
4. Embed climate data in steering and decision making
To transition effectively toward sustainability, organizations must integrate climate data into their core business decisions. This involves embedding climate-related metrics into processes like investment evaluations, credit risk assessments, and capital allocation. By incorporating climate risk and opportunity assessments into decision-making, financial institutions can better manage financial risks while actively reducing their carbon footprints. Supporting customer-level transitions becomes a natural extension of this approach, as institutions align their portfolios with long-term sustainability goals.
5. Implement robust data governance frameworks
Strong data governance is critical for ensuring the quality, accuracy, and compliance of ESG data with ever-evolving standards. Organizations must establish comprehensive governance frameworks that include regular audits, data validation, and ongoing updates to align with new regulations. These frameworks should monitor how ESG data is collected, stored, and used, ensuring consistency and compliance at every stage. As ESG reporting becomes more central to business operations, robust governance will be crucial for maintaining trust with regulators, investors, and customers, safeguarding both reputation and legal standing.
Ensuring a compliant future
Financial institutions must take proactive steps to align with regulatory requirements and industry expectations. Adopting these best practices will enable them to ensure compliance and enhance their long-term sustainability and resilience. Financial institutions play a critical role in financing the net-zero transition and supporting companies in becoming more sustainable. They need to scale ESG beyond meeting regulatory requirements to portfolio management and capturing ESG-related opportunities. This will not only mitigate risks but also position them as leaders in driving the transition to a low-carbon economy. As the demand for transparency and accountability grows, these strategies will be critical in creating trust with regulators, investors, and customers, ensuring a competitive edge in a climate-conscious world.
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