The widespread issue of greenwashing has eroded trust in the Financial Services sector. It is due to vague and inconsistent terminology like ‘green’, ‘ESG’, and ‘sustainable’, investors struggle to verify the authenticity of sustainability claims.
The Financial Conduct Authority (FCA) of United Kingdom has established a new sustainability disclosure and labelling regime to increase transparency and trust in sustainable investment products.
The FCA’s response includes implementing unambiguous, honest sustainability claims, applying specific criteria for product labels, and enforcing strict naming and marketing standards for sustainable investments, thereby aiming to restore investor confidence and clarity in the sustainable investment market.
Our proposed idea is to build metrics, measurement systems, insights and indices to address key challenges highlighted by the FCA. The objective is to improve transparency, trust and integrity of ESG indicators in the financial services industry, while also mitigating transition [2] and litigation [1] risk.
[1] Litigation risk: where businesses are liable for their contribution to damages to nature.
[2] Transition risk: whereby socioeconomic or political shifts toward net zero undermine non-aligned investments.
The idea leverages the integration of satellite data with terrestrial sources (IOT) to revolutionize ESG (Environmental, Social, and Governance) disclosure analytics and data sets to train predictive AI.
• “72% of companies and 75% of Bank Loans in the EU & UK are exposed to the loss of nature” – Frank Elderson, European Central Bank (2023)
• Deutsche Bank’s DWS settlement with US regulator includes historic $19mn penalty over greenwashing allegations – Financial Times
• “One of our observations was that the subjective nature of ESG factors and how ESG data and ratings are incorporated into benchmark methodologies could increase the risk of poor disclosures,”- Financial Conduct Authority UK, in a strongly worded letter to chief executives of index providers.
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