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How technology can support sustainability risk management

Climate initiatives are rapidly moving to the top of corporate strategy to-do lists worldwide. Businesses are increasingly shouldering the responsibility for change after human activity was found to be responsible for irreversible changes in the Earth’s climate in the recent Intergovernmental Panel on Climate Change (IPCC) report.

Financial institutions, as a result, are looking to gain insight into the environmental landscape of their supply chain. To truly assess their portfolios, visibility of data covering geographical, climate, and weather factors is vital, plus information on carbon footprint, historical carbon emissions, and strategies to reduce emissions. Also pivotal is customers’ compliance with ESG standards and reporting on the impact of transitioning to sustainable infrastructures.

There is, therefore, a need to ensure transparency in sustainable practices. From a regulatory standpoint, the Singapore Exchange (SGX) has announced a series of ESG disclosure proposals for users that includes mandatory climate reporting, which is due to come into effect in 2022 and will then become mandatory for other sectors within the following two years. Going forwards, financial institutions must ensure they have access to relevant environmental impact data that is easily accessible, comprehensible, and usable. The key to enabling this is the use of supporting technology.

ESG solutions

To enable the monitoring of transactions and supply chains, financial institutions need to adopt new solutions. It’s important, however, that ESG is not just approached with meeting regulations in mind, but to ensure that investments and green financing are prioritised for the benefit of all. As a result, it’s crucial to incorporate sustainability risk screening to avoid transitional costs being incurred later in the process.

Solutions are expanding to help redirect the supply chain towards more environmentally conscious decision-making. This comes as The Monetary Authority of Singapore (MAS) has allocated $1.8bn USD of its Official Foreign Reserves to climate-related investment opportunities, and the Green and Sustainable Finance Cross-Agency Steering Group has been established by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC).

Simon Ring, Pole Star

With the integration of empirical climate impact data and carbon emissions reporting into a web-based sanctions screening and compliance platform, organisations are able to access a 360-degree view of regulatory and sustainability risk. Businesses can gain visibility of certain risks associated with actively traded commodities, suppliers, growers or miners, allowing environmental or social risks to be ascertained and categorised by type, plus social conditions of the supply chain and governance metrics. Businesses can also gain visibility of emissions calculations of vessels, providing greenhouse gas emissions data and a vessel’s environmental impact rating.

Harnessing an end-to-end digital solution allows clarity into sanctions, compliance, and sustainability in global maritime and commodities trade. As Singapore and Hong Kong’s long-term sustainability targets incorporate global and environmental regulations, datasets can be used for financial reporting and sustainable trade finance programmes.

Technology also allows organisations to screen a vessel used in a transaction, its associated ownership and management, against sanctions watchlists and countries. Users can verify a Bill of Lading and the vessels, ports, and carriers involved in its delivery from a single field of input, alongside calculating the carbon emission output and environmental impact of a transaction. Finally, a vessel’s real-time movements can be monitored, and an audit trail generated, to demonstrate compliance.

Keeping pace with emerging sustainability trends

Gaining access to trusted information is crucial, and using technology that integrates third-party verified data by accredited groups, such as the International Sustainability & Carbon Certification (ISCC), will ensure that accurate ESG information is available, enabling sustainability targets to be correctly monitored and the risk of greenwashing reduced.

To ensure effective sustainability risk management, the adoption of risk screening technologies plays an important role in tracking emerging sustainability trends and evolving environmental regulations. To enable true integration with sustainable practices, effective monitoring of supply chains and their environmental impact will need to become a standard process. With a collective industry effort to measure, analyse, and report on environmental impact, corporates will have access to the actionable insight needed to make decisions guided by green initiatives.
Source: By Simon Ring, Global Head of Maritime Trade Technologies & ESG at Pole Star

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