The sustainable finance ecosystem is as vast and as complex as the overall finance sector that it is a part of. One way for data and service providers to understand the type of information this sector needs is to look at the different reporting standards and frameworks that the industry has created to standardise the sustainability related information it receives from corporates and investment projects. The bulk of these reporting initiatives are voluntary frameworks and cover sustainability related impacts and dependencies, but mainly focus on risks.
These reporting requirements are increasingly being translated into regulations. In 2015, France became the first country to introduce mandatory climate change related reporting for institutional investors. The European Commission is looking to integrate sustainability considerations into its financial policies and, in the UK, the Bank of England is a big advocate of better measuring and managing climate-related financial risks.
Within this article, we will give an overview of the most important and adopted voluntary reporting frameworks and the sections where geospatial data could provide inputs or add value.
A term that is often used within this context is ‘disclosure’. In the financial world, disclosure refers to the act of releasing all relevant information on a company that may influence an investment decision. This includes both positive and negative news, data, and other details about its operations, or details that impact its operations.
With climate change happening here and now, and impacting every sector of the economy, investors are becoming increasingly aware of the potentially large and detrimental impacts on the operational and financial performance of their investments. A better understanding of climate change risks and opportunities would allow corporates, investors, and regulators to better price climate risks and appropriately allocate capital.
One of the most relevant and widely adopted initiatives on this front is the Task force on Climate-related Financial Disclosures (TCFD). The TCFD has developed a set of widely adopted recommendations that allow organisations to report climate-related information in their annual financial reports. The recommendations are voluntary and applicable for organisations across sectors and jurisdictions, and cover both climate change transition and physical climate change risks and opportunities. Specific recommendations are then developed around metrics and targets. Water, energy, land use, waste (management), and direct and indirect greenhouse gas emissions are recommended as specific metrics for disclosure, both in current and historic periods, to allow for trend analysis. Another recommendation is to use climate-related scenario analysis as a tool to understand the strategic and financial implications of climate-related risks and opportunities.
One of the main differences with some of the other sustainability and climate reporting frameworks listed below is the shift in emphasis from sustainability metrics only, to financial disclosures. Such as the impact of carbon regulation to consumer demand for a company’s products, or the supply chain disruptions likely to occur from severe weather events. More details on the actual recommendations, metrics, targets, and industry specific recommendations are publicly available in the TCFD Knowledge Hub.
Another relevant resource here is Acclimatise and UNEP Finance Initiative’s Navigating a New Climate report on piloting the TCFD recommendations around physical risks and opportunities across 16 banks. It includes two pilots with geospatial solutions and highlights the need for improved tools and spatial modelling expertise on the physical impacts of climate change for banks to better quantify physical risks and opportunities.
There are several other voluntary reporting guidelines and initiatives with a scope broader than climate change only. Major global initiatives include:
The initiatives described above, alongside many other sustainability reporting frameworks, are not necessarily mutually exclusive and are often compatible with each other. The key for investors and companies preparing the reporting is to use the right framework for the right purpose and the right audience. Nevertheless, a lot of issues remain around sustainability and climate-related financial reporting. At a University of Cambridge conference on climate-related financial reporting, several challenges were highlighted:
So how can geospatial data, and satellite data in particular, play a role? Products and services based on geospatial data can add value in a number of ways to different stakeholders involved in the reporting and analysis processes:
With the idea that ‘whatever is being measured, is being managed’, accurate, consistent, and comparable disclosure is needed for investors to effectively make more informed decisions to allocate capital to more sustainable and less risky investments. Although geospatial and satellite data are only one piece of the disclosure puzzle, they offer a highly complementary view to corporate disclosure because of its global scope, timely availability, and inherent comparability. So, let’s not wait until we have found the perfect indicators and data collection methods on ESG topics, let’s start now by developing innovative solutions to make geospatial data work for sustainable financial disclosure. There is a need, there is a market, and the UK is ideally placed to realise this opportunity and grow both the space and sustainable finance sectors simultaneously.
As part of the Catapult’s Explore Markets programme, we are investigating ‘Sustainable Finance’ as a growth opportunity for geospatial technologies. More information on Catapult’s activities in this area and some events where you can learn more about the topic and meet relevant players can be found on our website. More information on the sustainable finance sector, its key players and trends, and how they relate to the space sector can be found in the Catapult’s introductory paper.