Reimagining Space: Introducing Sustainable Finance
In this article for our Reimagining Space series, we are looking at the Sustainable Finance Sector and how satellite technology is enabling more considered and sustainable investment.
The transition to a sustainable global economy will be the most capital-intensive transition in human history. Sustainable finance is about aligning the financial system with global sustainability. This focus is becoming increasingly relevant as our economic activities reach beyond the natural and social boundaries of our planet.
A new and resilient financial system is required to underpin this economic transition. Getting financial markets to integrate climate change, environmental and social sustainability into their decision making will help institutions appropriately manage risk and reduce losses. But how can information from space power this process?
Satellite data has some inherent qualities that could complement current information sources within the finance sector. Satellite imagery, for example, offers a non-invasive and unbiased source of data compared to self-reported information. However, despite offering frequent standardized analysis, satellites and geospatial data have not yet been widely used. So how can we implement the use of this data within the finance industry?
The Earth is currently facing the global crisis that is climate change. Internationally policymakers, but equally financial institutions, are increasingly starting to realize that climate change is causing a threat to economic stability generally, which also means to the financial system. Financial institutions are therefore aware that climate change is financially impacting the assets and the holdings that they’re working with. They need ways to understand this, they need ways to understand the risks that they’re exposed to, they need ways to understand the impacts that investments are having on the planet and on the environment, which in turn causes risks around reputation or litigation.
Financial institutions increasingly need data to address this challenge. And traditionally, financial institutions rely on information that companies disclose, which includes financial performance data, and even non-financial information on sustainability and other impacts. This includes data like Corporate Social Responsibility performance. But typically the main source of information that financiers have is information which companies themselves disclose.
There are a lot of challenges with this data. It’s obviously self reported, it’s not very frequently updated, it comes once a year, not everyone is reporting this type of data because they don’t have to, there are no standards and it’s not mandatory. And when companies do report on this, actually, because there are no standards, it’s inconsistent – you can’t actually compare what one company is doing with another.
There are so many inherent data challenges, and when looking to the space sector, there is clearly a role to play for space based assets, and the data that they can generate, to complement this disclosure and to provide a source of information to financial institutions. It has the benefit of being neutral, it can be a lot more scalable, and you can really look at certain aspects of climate change or impact on a global level. And it is also inherently more comparable. If you use the same instruments, you look at the same type of things. You can see what’s changing over time, what’s changing in different regions, and you actually have data that’s comparable, consistent and collected frequently and it’s that as the inherent value proposition that space based data has, that is most valuable.
The opportunities are undoubtedly huge.
There are opportunities to use geospatial datasets, to not just look at risks, but at impacts, and to identify opportunities.
We can use the data to inform where capital should flow to actually address some of these challenges, not just mitigate risk, but to address the underlying factors.
We can identify where to invest in emission reduction or nature-based solutions for carbon capture or inform policy to stop practices like deforestation.
But for it to work, the data also needs to be digestible in a way that’s useful for financial institutions.
If you look at environmental impacts, social impacts and the sort of problems that the world is trying to solve, a lot of those don’t directly occur in the companies accessing the capital markets, they occur in their supply chains. They occur in the local communities. They occur in people’s homes. So it’s not enough to just know what’s going on, it’s knowing what’s going on, and then linking it to the entities who are accessing the capital markets.
Ultimately, if the data can be easily and straightforwardly available in a consistent way to financiers, it will begin to make an enormous difference to the way the world invests.
This article is a summary of discussions made during the recording of our In-Orbit Podcast Series.