We help other companies implement processes to promote environmental sustainability
Companies around the world are accelerating sustainable economic development. They are already spending more and more of their own resources to support their circular economies and environmental protection. Most financial institutions are attempting to support these activities, e.g. with more favorable loans based on the ecological ratings of these companies. At the same time, new legislative regulations are constantly emerging. One of these is sustainability reporting.
While this obligation is based on subjective data from selected entities today, in a year’s time, there will be thousands of such entities and reporting will be based on objective taxonomy. ARBES Technologies is reacting to this trend by developing a system that will be used by companies to collect data for company assessments and automated reporting as part of fulfilling ESG principles (Environmental, Social and Sustainable Governance).
Companies are obligated to invest into ecology
Stricter conditions such as the Green Deal for Europe, consumer pressure on sustainability as well as non-financial indicators of companies’ market performance result in companies implementing different aspects of long-term sustainability in their strategies. “This trend is also reflected in the direction of investment capital and investments in new green activities. In order to make these ambitions a reality, the European Parliament approved new rules on 18 June 2020, which will be used to determine environmentally sustainable investments ,” reveals Tomáš Rubač, Senior Analyst and Product Manager at ARBES Technologies.
The aim of the 2020/852 legislative framework is to provide investors and credit organisations with quantitative information on the extent to which companies’ individual investments in economic activities support long-term environmental (ecological) and social (societal) sustainability. The relevant criterion is not only the current situation but also projects planned or those underway to improve it – in other words, to clearly define how green each investment is and how much the given company is trying to better it.
How will this manifest itself in investing
According to Deloitte, the financial services sector will drive our transition to a sustainable economy. A wide range of stakeholders are calling for financial systems that are resilient to the complex web of environmental and social risks and that demonstrably ensure the financing of a low-carbon future, the protection of water resources and biodiversity, the recycling of their products and global sustainable development, both with respect to the environmental and social aspects of their activities. Financial institutions are thus obliged to disclose information on their individual investment instruments and portfolios as well as data on the proportion of their activities that are considered “green.” This obligation will be in effect as of January 2022 on the basis of a subjective assessment and then as of January 2023, it will be carried out on the basis of a screening of objective criteria (the so-called taxonomy).
The disclosure and reporting of information on activities and products now concerns:
- non-financial companies listed on regulated markets
- portfolio managers (funds, insurance companies, pension companies and asset management companies)
- financial institutions (banks, credit companies and securities dealers)
- other companies interested for marketing or other purposes
How will this affect lending
In addition to pressure from the general public and media to promote these ideas, financial institutions play an important role in assessing the financing of individual projects, not only in the form of investments but also in the form of loans. Several banks already prefer and sometimes even favor these “green”projects. It is therefore becoming standard practice for financing applicants to be asked to provide not only economic calculation but also data on both the one-off and long-term environmental impacts of the project they propose.
This collection of clear and easily interpretable data, however, must then lead to the establishment of a well-defined numerical expression (“green rating”) for the granting of any benefits.
It will be difficult in the future without an automated system
The definition, interpretation and evaluation of the data collected already varies from field to field but is certain to also change over time. Similarly, the taxonomy leading to the reporting of the share of green investments requires regular updating. ARBES Technologies is therefore working hard to develop a corresponding open automated system for its clients. “We are designing a reporting format for portfolio managers and financial institutions as part of our service support. For data collection, we plan to import formal data from third-party systems as well as to obtain it, for example, in the form of a questionnaire via smartphone, as we are already doing in the field of investments. Full automation for companies will significantly simplify these processes, speed up their implementation and strengthen their market position in the ESG area,” says Tomáš Rubač, explaining the principle of the functionality. The ARBES Technologies solution also includes the ability to generate green reports for individual portfolios (funds, asset management) and generate KPI reports for OCPs.
One must keep in mind that several other ESG-related legislative initiatives will come into force in the coming years. In the future, sustainability will therefore not be a choice but an obligation. ARBES Technologies is ready to help companies meet these obligations.