Workiva ESG report

ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS

ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS ESTABLISHING WHERE THE INDUSTRY STANDS WITH ESG REPORTING AND BENCHMARKING TECHNOLOGY CAPABILITIES WITH THE INFLUX OF ESG CHANGES MAY 2022

REPORT BY:

SUPPORTED BY:

ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS | MAY 2022

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ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS

CONTENTS

CONTENTS

INTRODUCTION FINDINGS

ABOUT US

3

SURVEY DEMOGRAPHICS AND OBJECTIVES

4

KEY FINDINGS

5

TRAINING AND DEVELOPMENT

6

ESG PRIORITIES

7

BUSINESS DECISION MAKING

9

ADAPTING PRACTICES

10

ESG DATA AND REPORTING

11

SYSTEMS AND TECHNOLOGY

12

CONCLUSION

14

A WORD FROM WORKIVA

15

CONCLUSION

TABLE OF FIGURES FIGURE 1. ESG TRAINING, ENGAGEMENT, AND POLICY WITHIN ORGANIZATIONS

5

FIGURE 2. IMPORTANCE OF E, S, AND G FACTORS WITHIN YOUR INVESTMENT, LENDING, AND STEWARDSHIP PRACTICES

5

FIGURE 3. PERCENTAGE OF INVESTMENT AND LENDING DECISIONS BASED ON A COMPANY’S ESG RATINGS

5

FIGURE 4. ESG INFORMATION AND DATA

5

FIGURE 5. IT SYSTEMS AND PROCESSES TO INFORM BUSINESS DECISIONS AND EVALUATE RISKS

5

FIGURE 6. HOW AUTOMATED AND STANDARDIZED ARE YOUR ESG REPORTING PROCESSES

5

FIGURE A. EST TRAINING: ENGAGEMENT AND POLICY WITHIN ORGANIZATIONS

6

FIGURE B. RATING THE IMPORTANCE OF ESG REPORTING

7

FIGURE C. ESG TOPICS IN TERMS OF IMPORTANCE

8

FIGURE D. OBSTACLES TO INVESTMENT/ADVISOR TEAMS IN MAKING ESG-RELATED INVESTMENTS

9

FIGURE E. CHANGES TO OPERATIONS, INVESTMENTS, OR LENDING PRACTICES IN RESPONSE TO CHANGING ESG FACTORS

10

FIGURE F. WHERE DO YOU PULL MOST OF YOUR ESG INFORMATION AND DATA FROM

11

FIGURE G. FACTORS LIMITING USE NON-FINANCIAL INFORMATION FOR ESG REPORTING

11

FIGURE H. IT SYSTEMS AND PROCESSES IN MANAGING ESG DATA TO INFORM BUSINESS DECISIONS AND TO EVALUATE RISKS

12

FIGURE I. PRIMARY TECHNOLOGY OR TOOLS USED TO SUPPORT ESG REPORTING

12

FIGURE J. ASSESSING NEW TECHNOLOGY TO MANAGE ESG DATA AND RISKS

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CONTENTS

ABOUT US

INTRODUCTION

CENTER FOR FINANCIAL PROFESSIONALS (CeFPro®) The Center for Financial Professionals (CeFPro) is an international research organization and the focal point for a global community of finance, technology, risk, and compliance professionals from the financial services industry.

CeFPro is driven by high-quality, reliable primary market research. It has developed a comprehensive methodology that incorporates data from its global community and validation by an international team of independent experts.

FINDINGS

Examples of some of CeFPro’s research include: •

Non-Financial Risk Leaders, the most comprehensive independent study of trends, opportunities, and challenges within non-financial risk.

•

Fintech Leaders, an international survey to assess the status of the fintech industry and provide details for informed decisions on technology and business-related matters.

CONCLUSION

To find out more, visit www.cefpro.com/research

WORKIVA Workiva simplifies complex work for thousands of organizations worldwide. Customers trust Workiva’s open, intelligent, and intuitive platform to connect data, documents, and teams. The results: improved efficiency, greater transparency, and less risk.

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CONTENTS

SURVEY DEMOGRAPHICS AND OBJECTIVES The Center for Financial Professionals (CeFPro®), in partnership with Workiva, conducted an extensive research project to better understand the state of play of ESG across financial services. Some of the key objectives and intended audience takeaways from the research were:

INTRODUCTION

• • • • •

Identifying where the level of urgency lies within financial services across Environmental, Social and Governance.

Identifying where financial institutions fall on the automation continuum and realizing the benefits of automation.

Evaluating the maturity of ESG risk assessments.

Understanding to what extent ESG standards are driving investment and loan strategies and decisions.

Monitoring connectivity and integration of ESG data and how organizations are using data for ESG reporting.

FINDINGS

The findings of this report aim to provide a benchmark for financial institutions as to progress and development in the above-mentioned areas of automation, reporting, data, and investment decision making.

CONCLUSION

The survey ran from February 14 to March 28, 2022 and received over 130 responses, predominantly from North America. Once the initial findings were concluded, CeFPro conducted one-on-one interviews with industry experts to share their views on the findings and how they compare. The panel of experts included senior industry practitioners from large and mid-sized financial institutions. Some of the results were to be expected. However, many sparked debate and surprise among the expert panel. The survey focused on financial services and included responses from both public and private companies including banks, insurance companies, regulators, vendors, and asset managers, among others.

Institution size ranged from large global organizations to community banking institutions.

The hypothesis of the survey and this report centered around expectations for increased regulatory change and scrutiny, with banks increasingly incorporating ESG mandates within their operations. As a result, we expect them to prioritize governance (e.g., data management, systemic risk management, business ethics, and legal or regulatory environment concerns) over some of the environmental and social aspects. Alongside developing policies to support change, some are investing in new technology to adapt and drive change, while others do not yet realize the priority of ESG reporting and modernizing systems. As firms build out capabilities, consistency and quality of data are expected to be lacking and underpinned by leveraging external sources (public data, third party research, or media).

Some financial institutions were expected to be ahead of the curve in accessing integrated data, not only for ESG reporting but also for reporting hierarchies (e.g., statutory reporting, financial reporting, or internal control management).

This report looks to identify where financial institutions truly stand with ESG reporting and whether they are keeping pace with the influx of ESG changes by leveraging technology.

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KEY FINDINGS FIGURE 2:

FIGURE 3:

47% of surveyed institutions either don’t provide training or respondents were unaware that any was available.

Governance ranks highest in importance across lending, investment, and stewardship practices.

58% were unaware or stated that none of their bank’s investment and lending decisions are based on a company’s ESG rating.

FIGURE 4:

FIGURE 5:

FIGURE 6:

70% of ESG information and data is pulled from external sources, including third-party research, media, and other public data sources.

79% rated their IT systems and processes in managing ESG data to inform business decisions and evaluate risk as advanced or highly advanced.

49% say ESG reporting processes have no automation and all data is updated using manual processes.

INTRODUCTION

FIGURE 1:

FINDINGS CONCLUSION

What is evident is that E, S, and G will continue to have a profound impact on the financial services sector for many years to come. There is much work ahead on areas such as universal definitions, impact metrics, identification, measurement, and mitigation. Additional work is also needed in training, automation, and standardization, as well as incentive schemes, such as tax benefits, to ensure that the benefits are matched with the future expectations.

Andreas Simou, Managing Director, CeFPro

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CONTENTS

TRAINING AND DEVELOPMENT

INTRODUCTION

As an introduction to the survey, the questions aimed to get a better understanding of the current state of play within organizations and how their structure and prioritization of ESG siloes are driving change. The first question (Figure A) looked to review training practices and the frequency of ESG engagement and policy training.

A surprising 35% stated that training isn’t provided in their organization, sparking surprise from industry experts who provided insights on the results. The results were “shocking” that over 1 in 3 do not provide any level of training by an expert interviewed during the research phase. This could be related to how broad the topic is

and understanding where to start with providing information. It was unlikely to be a budgetary constraint, given the time and resources being thrown into ESG across the industry. Therefore, it could be that the relative immaturity of the area is perhaps still driving the lack of training as the industry tries to better understand expectations and where to focus teams and development.

The question also explored ESG on a holistic level. It could be that training is not provided for the bigger picture, but some may unknowingly have training programs in more specific work areas to gain a deeper dive into areas related to their roles within ESG.

FINDINGS

FIGURE A. DOES YOUR ORGANIZATION PROVIDE ESG TRAINING? IF SO, HOW OFTEN IS YOUR ESG ENGAGEMENT AND POLICY TRAINING?

CONCLUSION

Training isn’t provided

35%

Periodically

24%

Annually

18%

I don’t know

12%

Quarterly

7%

Biannually

4%

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ESG PRIORITIES

INTRODUCTION FINDINGS

The survey then looked at the importance of E, S, and G factors across investment, lending, and stewardship practices. The results show minimal differences across each area, with governance emerging as the frontrunner in terms of importance across all three practices, followed by environmental, and finally social ranking least important of the three. Given the heightened focus and increased “headline risk” associated with many of the environmental aspects — which for the purpose of this survey was defined as physical impacts of climate change, technological breakthroughs, etc. – it was initially surprising to see this did not dominate in terms of priority and focus across all practices. Industry experts explained that good governance is a fundamental aspect that underpins all other aspects. Without good governance to provide the foundation for environmental and social aspects, much of the work could be in vain. It is important to note the definition of governance, which encompasses

data management, systemic risk management, business ethics, legal, and regulatory. It was discussed whether data challenges were driving much of the focus on governance. Given the relative immaturity of the area, data is highlighted as a challenge throughout the survey and this report, as will be addressed further later in the report. Social, which was defined as data security, customer/human welfare, and selling practices was the least important according to respondents. Although still an area that could be subject to substantial reputation and headline risk, it was theorized that this ranked slightly behind environmental, as it still requires extensive analysis to track and monitor compliance. Many are actively working on some of the human areas including diversity, equity and inclusion, and modern slavery agendas, with business units such as procurement/vendor/third-party risk (alongside many operational risk teams) having programs already in place or in development.

FIGURE B. BASED ON YOUR FUNCTIONAL ROLE, HOW WOULD YOU RATE THE IMPORTANCE OF ESG REPORTING?

CONCLUSION

12%

11%

13%

5%

8%

13%

Accounting and finance

17%

12.5%

13%

Lending services

16%

5% 6% 2%

10%

44.5%

Risk 30%

40%

42%

11%

6%

Sustainability 37%

17.5%

1% 6%

20%

11%

2%

Wealth and 12.5% Investment Management

39% 37%

N/A

Not important

Least important

Less important

Important

ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS | MAY 2022

Most important

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CONTENTS INTRODUCTION FINDINGS

When looking at individual functions, the survey then examined the importance of ESG reporting and how it ranked across accounting and finance, lending services, risk, sustainability, and wealth and investment management (Figure B). Risk and sustainability were the teams who ranked ESG reporting the most important, with 74.5% and 76%, respectively, ranking them as important or most important. It was interesting to note the importance of sustainability as a listed functional role, and as the highest-ranked in relation to importance. It was discussed during the one-on-one interviews that the inclusion of sustainability as a functional role indicates the direction the industry is traveling, with many companies developing functional roles at the board level to address ESG agendas.

CONCLUSION

The survey then moved toward breaking down ESG topics and ranking them in order of importance.

Relatively unsurprisingly, systemic risk management, business ethics, and data security ranked highest with each having over 80% of respondents rating them as important or very important (Figure C). As outlined above, governance was previously defined as data management, systemic risk management, business ethics, legal, and regulatory. Therefore, it stands to reason that these would again be ranked of the highest importance. The omission of data management and instead inclusion of data security in Figure C means not all three fall under governance as per previous definitions, though the panel of industry experts suspected this was referencing governance aspects.

Overall, ESG priorities across the industry seem to sit within governance, with environmental and social aspects lagging slightly behind and data and analytics needing advancement to enhance development. The panel of industry experts speculated here on how this may advance over the course of the year. With many environmental targets increasing, we would expect to see “emissions, air and water quality, and hazardous materials management” potentially increasing in importance over the coming 12 months.

FIGURE C. HOW WOULD YOU RATE THE FOLLOWING ESG TOPICS IN TERMS OF IMPORTANCE?

5%

5%

10%

13% 47%

Business ethics

49%

Data security

36%

35%

6%

6% Emissions, air and water quality, and hazardous materials management

43.5%

14%

28% Fair and transparent tax reporting

21%

36.5% 45%

3% 8%

5%

22%

Product access and affordability

30%

%

46.5

Systemic risk management

42.5% 43%

5% Not important

26.5% Product design and lifecycle management

24%

Somewhat important Important Very important

44.5%

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BUSINESS DECISION MAKING

INTRODUCTION FINDINGS

The next area to explore within the survey was the extent to which ESG is influencing business strategy and investment and lending decisions. What immediately stood out was a lack of connection of ESG data with decision making. The survey inquired as to the percentage of investment and lending decisions based on a company’s ESG rating. Thirty-five percent of respondents didn’t know, and 23% stated that none were. With many financial institutions so complex in nature, size and complexity of financial institutions may play into the results. But if ESG were a top priority in driving business decision making, then it’s reasonable to assume that all divisions across banks/financial institutions would be more tuned in to ESG’s scope of influence in these matters. Of those that were aware or did leverage ESG ratings for investment and lending decisions, 17% stated that over 22% of their bank’s investment and lending decisions were based on ESG ratings. The findings here potentially point to a divide in audience, with many institutions being large

and complex where not all would be as aware, alongside some more nimble organizations who have advanced their capabilities to leverage ESG data. Again, this was an area the expert panel expected to dramatically change over the next year, with capabilities to leverage data for effective investment and lending decision making expected to advance at a rapid pace.

Following the previous question, the survey moved to explore obstacles hindering organizations from making ESG-related investments. Data challenges emerged as the key challenge in allowing organizations to further develop in this area (Figure D). Over half of respondents indicated that they did not have enough data to make investment decisions, with an additional 43% reporting a lack of trust in ESG reporting data. Those that do have access to data may be experiencing a lack of trust in the data they have available and therefore unable to leverage the insight for investment decision making.

FIGURE D. WHICH OF THE FOLLOWING CHALLENGES ARE THE BIGGEST OBSTACLES TO YOUR INVESTMENT/ADVISOR TEAMS IN MAKING ESG-RELATED INVESTMENTS? CHECK ALL THAT APPLY.

CONCLUSION

Not enough data to make more investment decisions

51%

Lack of trust in ESG reporting data

43%

ESG disclosures are too boilerplate

40%

Low client demand

23%

Too much research and analysis time and/or costs

18%

Lack of high returns

16%

Addressed in Figure F, 39% of respondents stated that they leverage external performance data as their primary source of ESG data. This data can be more difficult to work with when lacking assurance on the assumptions and inputs driving the results. As a result of the lack of maturity across the industry, there is a lack of standardized reporting or methodologies, which further impacts data collection. Forty-three percent of respondents referenced a lack of trust in their ESG reporting data, which could be from the lack of data pushing organizations toward heightened use of external sources. There is uncertainty in the industry as to how to use data, and with so many looking for “green” status, data could be misleading

in order to paint a more favorable picture. Therefore, assurances on data, both internal and external, as well as tracking assumptions and inputs, are important to protect reputation and status. Lack of standardization means there are no clear outlines for how to use data for investments or measure a company using set criteria for what constitutes “green.” The next highest ranking with 40% was that ESG disclosures are too boilerplate, again relating to limited access to data, meaning disclosures provide little insight. It seems a fair conclusion that data is driving many challenges in making ESG-related investments, both from limited standardization and a lack of maturity, thus limiting access to usable and reliable data.

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ADAPTING PRACTICES

INTRODUCTION

FIGURE E. WHAT TANGIBLE CHANGES HAVE YOU MADE TO YOUR OPERATIONS, INVESTMENTS, OR LENDING PRACTICES IN RESPONSE TO YOUR INSTITUTION’S CHANGING VIEW TOWARD ESG FACTORS?

ESG has evolved at a rapid rate over the last few years, with heightened scrutiny from consumers, investors, and regulators. We explored how organizations are reacting to change by looking at the tangible changes implemented in operations, investments, or lending practices in response to changing views towards ESG factors (Figure E).

37%

37% 35%

38% 36% 32%

31%

29% 26%

26%

FINDINGS

25% 23%

23%

23% 19% 15%

14%

12%

CONCLUSION

Added new staff to address ESG risks

Increased ESG-specific budgets

Increased engagement with other companies focused on ESG issues

Operations

Unlike previous questions where business areas were aligned in their priorities, there are some disparities to be seen in Figure E. The biggest change in operations was split across adding new staff to address ESG risks and increased ESG-specific budgets. Investments saw 38% of respondents stating increased engagement with other companies focused on ESG issues as the biggest change, and the highest scoring in lending were those who made no changes. It was speculated in additional research that operations and investment teams are investing heavily in order to move toward ESG compliance with lending expected to follow, with progress less mature at this stage. It could also be that the respondents represented organizations more focused on other areas of the business.

Across operations and investments, budgets seem to be increasing to manage the complexity of the challenge to incorporate ESG changes, further indicating that budget

Paid premiums to invest in companies with high ESG ratings or increased lending toward them

Investments

Supported ESG shareholder proposals

Made no changes

Lending

may not be what is hindering training and development as outlined in Figure A. An interesting focus within investments is the number of respondents who highlighted engagement with other companies focusing on ESG issues, potentially pointing toward a more collaborative approach, though the wording is unclear as to whether this is collaborative or from a business perspective engaging third parties or vendors.

The results are not solely indicative of an industry heading in a certain direction, as an additional 32% within investments also stated no changes were made and 23% in operations. There do not seem to be consistent tangible changes across practices that would point to a specific direction, though increased headcount and budgets could point to potential changes on the horizon.

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ESG DATA AND REPORTING FIGURE F. WHERE DO YOU PULL MOST OF YOUR ESG INFORMATION AND DATA FROM?

INTRODUCTION FINDINGS

External performance data (suppliers, partners, other third parties)

39%

Internal data and reports (ERP, HR, and other corporate systems)

30%

Third-party research

15.5%

Other public data

8.5%

Media

7%

CONCLUSION

As referenced previously, the survey reviewed data limitation as a key area for development. Thirty-nine percent of respondents listed external performance data first, which included suppliers, partners and other third parties (Figure F). When consulting with industry experts, there seemed to be a surprise that this number was not closer to 80%, with some suggesting perhaps the options caused confusion as “third party research”, “other public data”, and “media” would all be considered external data sources, indicating that 70% use external sources when reviewing more broadly outside of just performance data. With many relying on large data providers and insights from corporate disclosures for investments, it is unsurprising that external sources are so highly leveraged.

Thirty percent mentioned internal data and reports, including ERP, HR, and other corporate systems as their main source for ESG information and data. It was suggested that many leverage external sources of data and benchmark that against their internal strategy. This can cause a disconnect when external data does not align with internal views and objectives, underscoring the need for an accepted metric.

When reviewing the quality and consistency of ESG data, 54% rated theirs as average, though potentially the safe option, with a scale of 1-3 ranging from above average to below average, and 38% stating below average. Again, the audience demographic was highlighted. If a larger portion of the respondents were from risk teams where the mindsets tend to be more pessimistic, they may have rated lower with room for improvement, whereas investment managers may prefer a less cautious approach.

With disclosures at an early stage, assurances remain a challenge and could impact the perception of quality and consistent data.

When reviewing factors that limit institutions’ ability to use non-financial information for ESG reporting, 48% cited not enough quantitative or qualitative ESG data (Figure G). The question does reinforce earlier conclusions that organizations are having difficulties gathering data, as well as properly assuring and standardizing it. Qualitative data could look to provide a deeper assessment. With a lack of a benchmark for qualitative assessments, further challenges arise. A further 34% stated a lack of data assurance as the main factor hindering their ability to use non-financial information for ESG reporting. As highlighted in Figure F, with such large numbers leveraging a wide range of external data sources, providing assurance remains a key hurdle. It is essential to develop the ability to validate and gather assurance on vendor data and mitigate the risk of litigation or greenwashing accusations.

Difficulty mapping to ESG frameworks was the top factor for 32% of respondents. A distinct theme of data challenges quickly emerges across all aspects of the research study, resulting in an additional 26% highlighting time-intensive data gathering and analysis, as well as high costs, closely linked with the above answers to Figure G.

FIGURE G. WHICH FACTORS LIMIT YOUR ABILITY TO USE NON-FINANCIAL INFORMATION FOR YOUR ESG REPORTING? Not enough quantitative or qualitative ESG data

48%

Lack of data assurance

34%

Difficulty mapping to ESG frameworks

32%

Time-intensive data gathering and analysis and high costs

26%

Other

5%

The survey featured an extensive focus on data and the limitations that data poses to the industry. Research backs up the initial hypothesis, with many prioritizing governance and specifically the data management challenges within the “G” in ESG. With such challenges arising and the ripple effect of insufficient data, it is a fair assumption that regulators will turn their attention to further scrutiny and standardization. Over the course of the next year, our expert panel expected many aspects to evolve significantly and regulation may be a key driver for this change.

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SYSTEMS AND TECHNOLOGY

INTRODUCTION

FIGURE H. HOW ADVANCED ARE YOUR IT SYSTEMS AND PROCESSES IN MANAGING ESG DATA TO INFORM BUSINESS DECISIONS AND TO EVALUATE RISKS?

The survey then moved away from data aspects toward technology and systems to support the data and information decisions. When asked how advanced respondents’ IT systems and processes are in managing ESG data to inform business decisions and evaluate risks, 61% stated theirs were advanced (Figure H).

Advanced

61%

(ESG reporting tools, analytics dashboards, cloud tools, AI-powered research, technology reviewed and updated continually)

Highly advanced

FINDINGS

(Embedded company-wide ESG ecosystem, AI-powered research, boardroom-reported ESG data-driven insights, cloud tools, superior ESG forecasting driving business decisions and partnerships, technology reviewed and updated continually)

18%

Less advanced than would like them to be

(Manual data management, internal systems data gathering, partner reports, internal communications)

CONCLUSION

In this context, advanced was defined as ESG reporting tools, analytics dashboards, cloud tools, AI-powered research, and technology reviewed and updated continuously. An additional 18% stated their systems were highly advanced, viewing their IT systems as embedded company-wide with AI-powered research, boardroom-reported ESG data-driven insights, cloud tools, superior ESG forecasting driving business decisions and partnerships, and technology reviewed and updated continually. It was highly surprising to see that so many would define themselves as advanced or highly advanced in their IT systems and processes, with access to such advanced capabilities, yet data is limiting advancement.

The results here could be attributed to the wording of the question, and how the term advanced was defined, which may not align with how others may typically define the word advanced without additional context. This also provides a contrast to an earlier question, where 35% didn’t know the percentage of investment and lending decisions based on ESG ratings, and 23% didn’t use ESG ratings to inform investment and lending decisions. It is interesting to see that 79% stated that they have advanced or highly advanced IT systems and processes capable of managing ESG data to inform business decisions and evaluate risk.

When reviewing the primary technology tool used to support ESG reporting, 36% stated that desktop tools are the predominant tool (Figure I). This again was the source of some confusion when reviewed in the context of the previous question where IT systems and processes were so highly rated. Desktop tools were not typically considered automated or advanced tools and therefore seem to provide a level of uncertainty as to how automated

6%

systems can truly be when relying so heavily on desktop tools typically not considered advanced. Twenty-three percent mentioned an on-premise solution, which would imply a self-built system tailored to company needs and expectations. This is often a very complex, time-intensive, and highly cost-intensive task for larger organizations.

An additional 20% leveraged outsourced services, and 19% used cloud-based software, both of which could be seen as outsourced services, if not a self-built cloud.

Overall, Figure I provides uncertainty as to the state of IT systems, processes, and technology implementation. The results seem to be less aligned and consistent than others, though this could be due to interpretation of the level of automation in the previous question.

FIGURE I. WHAT IS THE PRIMARY TECHNOLOGY OR TOOLS USED TO SUPPORT YOUR ESG REPORTING? Desktop tools

36%

On-premise solutions

25%

Outsourced services

20%

Cloud-based software

19%

Other

7%

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CONTENTS

Another question providing further uncertainty as to the level of automation investigated levels of automation. For this section, automation was defined as standardized ESG reporting processes. Almost 50% stated no automation with data housed in standalone record, HR, and ERP systems, with all data adjusted and updated using manual processes. Only 4% listed full automation of ESG reporting processes. This provides a stark contrast to Figure H where almost 80% listed advanced or highly advanced when characterizing their IT systems and processes.

INTRODUCTION

FIGURE J. WITHIN YOUR BUSINESS AREA AND IN THE LAST 12 MONTHS, HAS YOUR ORGANIZATION CHANGED ITS STANCE TO ACTIVELY ACQUIRE NEW TECHNOLOGY TO MANAGE ESG DATA AND RISKS?

12%

14%

17.5% 30%

31% 38%

Lending services

Accounting and finance

21%

Risk

43%

FINDINGS

37% 19%

19%

CONCLUSION

11%

25%

Sustainability

18.5%

13%

24%

Wealth and investment management

43% 42%

21%

21%

Yes, has become more of a priority

Same as a year ago

Looking at the developments and investment in technology over the last 12 months, respondents were asked whether their organization has changed its stance to actively acquire new technology to manage ESG data and risks. This was broken into business areas where risk and sustainability were once again key drivers. Figure J provides a visual as to how each business area is prioritizing advancement of technology to manage ESG data and risks.

When it comes to technology and systems more broadly, there seems to be a much less clear view of progress and where the industry lies. It is reassuring to see such

No action taken or sought

Plan on prioritizing in the next 6–12 months

a high number state their IT systems and processes as advanced or highly advanced and that they are informing business decisions. However, the level of automation and tools being used for reporting do not align with an advanced IT landscape. A key theme emerging is that risk and sustainability stand as the key drivers of change at this stage: 43% in Figure J stated that investment in new technology had become a priority in the last year. In wealth and investment management, 42% stated no action was taken or sought, and 38% within accounting and finance. Again, the results here are expected to advance over the next year with more investment and focus on data and developing technology and systems.

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CONTENTS

CONCLUSION

INTRODUCTION

The results from this survey identify data as a key challenge and hurdle in successful management of ESG and its advancement in the industry. ESG is no longer a trend or a buzzword; it is a business practice that is driving strategy and business decisions. The data required to effectively do this is lacking and many do not have the capabilities to collect and use internal data that is reliable and usable. They are therefore relying on external sources that have little assurance and even relevance to internal goals and strategy. Processes are being built and adapted to manage the data limitations, where technology and IT systems seem to be more advanced and capable of processing the data and informing decision making.

As per the initial hypothesis to open the report, governance is leading in priority for most areas, mainly driven by data limitations and developing effective data management practices. Some banks are ahead when it comes to internal data and automation to provide a centralized data structure. Others are not prioritizing investment in technology and automation as a tool to enhance data practices and instead relying on external sources to provide the lion’s share of their data.

FINDINGS

Regulators are expected to continue in this direction, increasing scrutiny on organizations, and encouraging incorporation of ESG mandates within operations.

Finally, ESG is not yet driving strategy to the extent that many would expect it to. The lack of data and standardization is not providing the granularity, consistency, and reliability of information required to drive strategy and decision making.

Data and technology should remain a key investment priority, with many not keeping ahead of change.

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ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS

CONTENTS

A WORD FROM WORKIVA We live in a material world. Not only companies but also financial institutions can no longer simply brand themselves as supporting ESG standards—they need to rethink how their operations align with them to stay valid in a discerning market.

INTRODUCTION

To see how financial organizations are responding to the welter of ESG pressures, Workiva Inc. partnered with The Center for Finance Professionals (CeFPro) to conduct a survey on what specific actions financial institutions are taking to reorient themselves to the new ESG reality. Despite this urgency, the survey’s results collectively indicate that the incorporation of ESG into daily practices is still in a nascent stage.

Below we have detailed some compelling results that reveal an overarching theme: Identifying, procuring, and synthesizing data remain key hurdles in integrating ESG standards into their operations. The apparent lack of data and supporting regulatory standardization of it is stalling most financial institutions in using ESG-related information to drive broader strategic decisions.

FINDINGS CONCLUSION

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Of the E, S, and G factors, banks have ranked governance as the leading focus across investment, lending, and stewardship practices. This perhaps indicates that they are prioritizing data management practices in all of these areas.

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Over half of respondents reported that they do not have enough ESG data to make investment decisions, while 43% lack trust in ESG reporting data. Meanwhile, 48% cited that limiting qualitative or quantitative data reduces their ability to use non-financial information for their ESG reporting.

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Despite the scarce data, a majority of banks are investing in technology to empower better data management policies. Risk, sustainability, and accounting and finance are leading other functions in modernizing their systems. Yet, although banks rate themselves as having advanced technology enablement (61%), most still rely on legacy processes, such as desktop tools (36%) or on-premise solutions (25%).

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Regardless of pressing ESG regulations, 35% of survey takers reported that ESG engagement and policy training isn’t provided, while 24% responded that they receive only periodic training; 12% did not know if training was provided or not.

As the ESG agenda matures, technology modernization to support finance transformation and the preparation of trusted data for a broadened stakeholder group should continue to be a priority for financial organizations to keep pace with the flux of change.

We hope you find the survey insightful as you continue to grow and transform your operations in a new business world.

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ESG STATE OF PLAY: BANKS’ COMPLIANCE AND AUTOMATED REPORTING TRENDS

Join our global online community at www.cefpro.com © 2022 Center for Financial Professionals®, All rights reserved No part of this publication may be reproduced, adapted, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Center for Financial Professionals (CeFPro®).

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed.

Please note that the findings, conclusions and recommendations that CeFPro delivers will be based on information gathered in good faith, whose accuracy we cannot guarantee.

CeFPro accepts no liability whatever for actions taken based on any information that may subsequently prove to be incorrect or errors in our analysis.

CeFPro® is a Trade Mark of Center for Financial Professionals.

Unauthorized use of Center for Financial Professionals’ (CeFPro®) name and trademarks is strictly prohibited and subject to legal penalties.

CeFPro® is a registered trademark of Centre for Financial Professionals, registered in the UK.

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