Creating An Effective ESG Framework And Managing A Changing Risk Landscape – Boldly Go Where The World Is Going!

By Fraser Hall, Global Product Manager – FinReg, AxiomSL

European regulators are leading with environmental, social, and governance (ESG) disclosure requirements, although given the direction the world is going – in terms of ESG framework development – other regulators will not be far behind. The European Banking Authority (EBA), European Securities and Market Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) have coordinated their requirements to enable organizations to meet standardized ESG disclosure mandates. Those ESG disclosure requirements are coming into force in January 2022, with a two-year transition period concluding in 2024.

ESG Framework Quote

Although at present ESG disclosures in many jurisdictions involve a patchwork of mandates – including for example voluntary disclosure in Australia and Japan, mandatory disclosure often via a scoring system in Singapore, and a new January 2021 requirement in the United Arab Emirates for public joint stock companies to publish a sustainability report – given the impact of ESG on the global financial system, organizations are awaiting formal guidance in many parts of the world. In the United States, the Financial Stability Oversight Council (FSOC) is currently undertaking an assessment of climate risk on the financial system and New Zealand recently introduced a bill that, if passed, will make climate-related disclosures mandatory for approximately 200 organizations in the country.

Clearly, institutions must prepare their ESG framework right now. But when taking into consideration factors like the United Nations’ development goals, other global frameworks, and associated risks it is important to look further than 2022, at both the five-year horizon and well beyond. As the world transitions to increasingly green priorities, no organization will be insulated from having to confront issues that are shaping the present and whose consequences will affect future generations.

Like the characters in Star Trek, who went boldly into space where no one had gone before, organizations will need to respond just as boldly to this global mission and traverse the world of ESG rather than the outer galaxies. There will be a cost and capital impact for incorporating emerging risks and accommodating ESG mandates. Organizations need an effective, technology-driven approach – an ESG framework – for managing foreseen and unforeseen risks.

Beam Me Up Mr. Scott!

Important questions organizations may be asking as they create ESG frameworks that can handle diverse challenges include:

  1.   Are ESG risks a separate risk category?
  2.   Are we able to capture ESG risk data alongside existing exposure information to satisfy disclosure data points?
  3.   Are our models adaptable – including accommodating natural disasters, retirement liabilities, population demographics, environmental weaknesses, and black- swan events in various stress testing scenarios?

 

As firms assess their capabilities and answer these questions accordingly, they will be looking to create an ESG framework and risk management ecosystem that supports actionable business decisions associated with the aim of growing the green economy. When Captain Kirk asked Mr. Scott to ‘beam him up’ to the Starship Enterprise spaceship, the process was instant. While creating an ESG framework may not be so instantaneous, a technology-driven approach will lay the foundation for seamless processes. Digitalization technologies will enable increased functionality while decreasing the resources required to effectively manage diverse risks and grow businesses that will have positive global impacts, including promoting sustainability and driving economic and social progress.

Mr. Spock, What Do We Know?

As the trusted science officer of the Starship Enterprise, Mr. Spock was often called upon to provide facts about the galaxy and how to navigate it. He once postulated that there is no reason for function not to be beautiful.

AxiomSL, a leading global provider of regulatory solutions in a SaaS environment, delivers efficient risk and regulatory data-management and reporting for financial institutions. Its single, fully managed RegCloud® – AxiomSL’s ControllerView® platform and solutions – futureproofs clients against technology and regulatory change. By providing optimal function and seamless processes a beautiful picture emerges.

Navigating The ESG Galaxy: A Transparent, End-to-End Solution

The below schematic illustrates how AxiomSL’s ESG solution delivers a fully automated end-to-end process in a secure cloud and SaaS-enabled ecosystem. The solution leverages AxiomSL’s unique FinView data dictionary architecture to allocate data to extensible ESG data dictionaries and accurately map for disclosures according to jurisdiction-specific requirements. Running on ControllerView, the solution seamlessly ingests client-native, third-party, and model data to deliver an end-to-end process for holistic ESG compliance and disclosure and complete management information insight reports.

ESG Framework Solution

AxiomSL’s ESG solution provides key capabilities, including:

  • A fully managed platform that delivers end-to-end – to deliver automated processes, from data input to output as per regulatory mandates
  • Monitoring ESG risk data against strategy – to continuously monitor ESG risks against defined mitigation strategies with trend and variance analysis
  • Powered by AxiomSL’s extensible FinView data dictionary architecture – to meet ESG specifications and reuse data consistently from other financial and statistical reporting requirements, including FINREP and COREP
  • Transparent, accurate, and understandable data – to facilitate deriving insights and satisfying audits/examinations
  • Flexible technology architecture – to enable increased functionality, optimize efficiencies, and decrease manual processes and resources required to effectively manage risks and drive responsible growth
  • Model management and execution – to address model proliferation, AxiomSL’s platform-native IntegratedModelView is a governance framework that accommodates various ESG models
  • RegCloud, AxiomSL’s ControllerView platform and solutions in a SaaS ecosystem – to achieve scalability, automatically update regulatory/technology changes, eliminate infrastructure burden, and reduce total cost of ownership

Warp Speed Ahead: Ensuring A Futureproofed Tomorrow With AxiomSL’s Comprehensive Risk Ecosystem

AxiomSL’s automated cloud and SaaS-enabled solutions and risk management ecosystem are built on deep industry knowledge and experience of working closely with financial institutions.  Clients are enabled to respond nimbly to change, paving the way for them to futureproof their risk management and capabilities for ESG mandates and other capital/credit/liquidity reporting requirements. Risk management teams and senior stakeholders gain both high-level and granular views of their organizations’ capital/credit/liquidity risk positions and their ESG framework. All of this empowers them to put processes in place to meet regulatory imperatives, manage ongoing changes, and gain a comprehensive perspective of both near and long-term risk.

The high-performance, cyber-security certified RegCloud enables financial firms to harness the power of the cloud, minimize total cost of ownership (TCO), and achieve on-time compliance across jurisdictions. Furthermore, the data-driven enterprise platform ingests native data from disparate sources without transformation. It seamlessly and transparently delivers the workflow automation and controls, validation, calculation, drilldown, unique dynamic data lineage and traceability, analytic dashboards, and reporting that stakeholders require.

With AxiomSL’s proven technology, organizations are enabled to create an effective and future-proofed ESG framework to meet the demands of a changing world that seems to be moving at warp speed – which as we know is faster than the impenetrable speed of light.

Navigating the Starship Enterprise is not the only way to go full speed ahead, to discuss your ESG framework, contact us.

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