Dr Murray Simpson, Global Director Sustainability & Market Integration Lead at IBM, believes climate change is an existential threat.
The drive to reverse the effects of human-induced global warming has led to the creation of global targets to limit climate change. But we’re already failing to meet the 1.5°C target set in 2015 by the Paris Climate Agreement, with the International Energy Agency stating at COP26 that we can hope to limit global warming to 1.8°C by 2050 if pledges made at the conference are kept.
The sheer scale of the climate crisis demands a change of mindset and a clear plan of attack. As well as identifying and directing capital towards sustainable investments, financial institutions are under pressure to provide accurate assessments of climate risk.
Climate risk reporting is starting to become regulated in some markets; the UK is set to make businesses disclose climate risk in line with the Taskforce on Climate Related Financial Disclosures (TCFD) recommendations. It’s not just a government-led issue though. Potential investors and shareholders expect the finance sector to provide climate risk reporting that informs greener Environment, Social and Governmental (ESG)-related portfolio options.
Data is vital to climate risk assessments. Only when armed with the right data, can financial institutions create an ambitious but realistic plan that engages with ESG ratings agencies or forms their own set of green finance goals. However, collecting data is only the start; organisations need the right tools and technology in place to unlock the value of their data and discover actionable insights in real time.
Dynamic, real-time data
Analysing climate risk and plotting a roadmap for sustainability relies on relevant, insightful data. But traditional data collection, monitoring and storage often limits data’s power and could even hold back progress when facing the increasingly urgent threat of climate change. Data’s full value needs to be mined to create an accurate, ambitious and efficient plan of action.
To make the most of its data, an organisation needs a flexible and inclusive data architecture. A data fabric architecture s allows data to flow freely through an organisation, preventing useful data from going unused in siloes.
By leveraging built-in automation and querying to identify the right data at the right time, a data fabric can access data wherever it resides. It also sources data without having to move it unnecessarily, which saves time, money and energy. This smart approach enables improved access to relevant data and unlocks deeper insights that will, in turn, inform better decision-making.
However, when creating a roadmap, financial institutions may struggle with the varying definitions of sustainability; interpreting the right course action from data can lead to varying results. This can make forming a cohesive roadmap a challenging process.
But an evolving definition of sustainability shouldn’t halt progress. As organisations collect more data and gain further insights, they will have to make real-time decisions in response to what the latest data is telling them. People working in finance will have to be agile and adapt the roadmap as both data and definitions of sustainability evolve. An open-minded, dynamic approach to data is the only way that we can ensure meaningful progress.
Technology unlocks the roadmap
Data is crucial, but the technology applied to data and the resulting predictive analysis will determine the details of the roadmap. Assessing climate risk demands a dynamic process of continual data capture and analysis, using intelligent data architecture and technology such as automation and AI, to ensure the most relevant and useful insights are revealed – and that the right action is taken as soon as possible.
Intelligent technology solutions such as IBM’s offering can interpret data and determine action quickly and efficiently. Powered by AI and hybrid cloud, they reveal deep, insightful, predictive analysis related to sustainability that turns insight into action. This type of technology reduces the burden of reporting on procurement and operations teams and makes dealing with the impact of climate change more efficient and cost-effective.
Blockchain technology also can provide companies with real-time visibility across supply chains, actionable predictions, traceability and crucially, the ability to share information securely. A thread that touches on every part of a business, a supply chain often determines an organisation’s sustainability credentials.
Paving the way
Financial institutions need to embrace green finance and climate risk reporting to not only save the planet but stay relevant and competitive. To fulfil the demands of government and shareholders, they need to create dynamic roadmaps for sustainability that are based on data, analytics and the insights it reveals.
As we face an existential threat, inertia is not an option. The power that the finance sector holds in society and across enterprise puts the industry in a privileged position that comes with huge responsibility. Finance needs to pave the way, creating a data-led, technology-supported framework that ensures the next tipping point falls in the favour of a green future.
About the Author
Dr Murray Simpson is Global Director Sustainability & Market Integration Lead at IBM. At IBM, we do more than work. We create. We create as technologists, developers, and engineers. We create with our partners. We create with our competitors. If you’re searching for ways to make the world work better through technology and infrastructure, software and consulting, then we want to work with you.
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