Pages: 16

This chapter discusses how sustainable finance and technology are interrelated. We start by showing the historical significance of three key concepts for finance: technology, digitalization, and data. On the basis of this, we outline three key perspectives that describe the relationship between ESG and technology: (1) ESG and technology (when technological changes are disrupting companies’ business models and hence influence investors’ valuation), (2) ESG through technology (when technological changes alter the way investors collect and analyze data), and (3) ESG as technology (when technological issues turn themselves into ESG risks and opportunities). We also caution that to fully grasp the relationship between ESG and technology, we also need to understand the changing epistemological foundations of sustainable finance in the digitalized age. We close by outlining how corporations can show leadership for ESG in a technologized world.

Pages: 99

No chapter abstract available.

Pages: 27

In the year 2100, claims populist physicist and successful author Michio Kaku, we humans will have perfected our bodies by means of biotechnology and neurotechnology, potentiated the abilities of our minds, and significantly extended our lifespans—perhaps even indefinitely. With the help of new nanotechnologies, we are transforming materials into each other or creating them as if from nothing. We could even move and manipulate objects purely by the power of our thoughts. Just as the scientific basis for current automobile and air travel was created in the eighteenth and nineteenth centuries, the basis for the miracle technologies of the twenty-first century is being created today. But unlike in the past, scientific and technological breakthroughs are no longer a matter of decades; they now take place virtually every year or even every month. The aim of this chapter is to take readers on an exciting journey that leads us into the world of possibilities of our own future.

Pages: 21

One of the most important phases in the development of modern humanity was the Industrial Revolution of the nineteenth century. Now, we are confronted with a similarly significant change: a green industrialization that represents the greatest economic and social transformation in 150 years. It will lead to the emergence of new business models and new technologies. This in turn means new risks as well as new opportunities which must be identified, disclosed, and assessed to detect real-world impact. Asset managers play a vital role in this adaptation since they—as fiduciaries of their clients’ assets—need to identify the risks and opportunities arising from environmental or social factors and engage with investee firms to support change. It becomes quickly obvious that data is key on this generational pathway and that the large amount of new information and its processing into clear signals requires two things: on the one hand, new standardized frameworks in reporting to enable comparability as well as new criteria and new data technologies to manage new information dimensions. This chapter puts into context the enormous change we are facing and the need for new frameworks and conditions to manage this pathway transparently: only if stakeholders provide, understand, and trust information, this real-world change can be supported by investors.

Pages: 21

Organizations must learn to understand the ecosystem in which digital technologies operate to ensure longevity and build a sustainable future. This chapter looks at specific digital technologies that critically influence the world and which can enable organizations to meet their Sustainable Development Goals ambitions. The chapter moreover outlines basic principles that must go hand in hand with the deployment of technological sustainability solutions to safeguard a purpose-led agenda. There is a proliferation of ESG standards in the marketplace which either are old and no longer respond to the technology and business dynamics or they are not performance driven and therefore represent a burden for companies. This chapter offers a new approach: the “Digital With Purpose” Framework—a new, modern, business-driven, positive, credible, and ambitious transformative platform to establish a new direction for the ESG market, breaking with traditional, conservative, and old-fashioned ESG approaches.

Pages: 9

The Volkswagen Group, led by Herbert Diess, is a driving force for the electrification of mobility. Volkswagen was the first traditional car manufacturer to commit to the Paris climate agreement. The company wants to become climate-neutral by 2050. In his chapter, Diess describes his guiding principles in the middle of transformation. He pleads to end silo thinking and intensify cooperation, especially between the automotive industry and the energy sector. And he advocates a clear focus on results: a climate protection that quickly translates innovative ideas into industrial practice, within the right political framework of an effective CO2 pricing. According to Diess, climate protection has long since become a real opportunity for companies. “The financial business case is accelerating the change.”

Pages: 15

Norway plays an important international role as one of the main actors in the blue economy. More than ever, a holistic and sustainable approach is needed to address global challenges, value creation, and knowledge-based management of the northern regions and oceans. The objective of this chapter is to demonstrate how thorough knowledge, wisdom, and courage combined with political leadership are needed to solve the global challenges and avoiding promising solutions thought to be a part-of-the-solution instead becomes part-of-the-problem. We must create incentives for demand and deliver across the entire value chain stimulating the stakeholders from a think tank to an executional do-tank to develop competence, knowledge, innovations, and new start-ups.

Pages: 193

No chapter abstract available.

Pages: 22

The impact of climate change will be felt across all societies, economies, and business functions. Grappling with such a widespread risk and fully understanding its potential impact on an evolving landscape, require a granular understanding of both customers’ businesses and our own. We can achieve this through more and better data, from internal and external sources alike. Putting in place better data-harvesting measures and the algorithms and technology to make use of them is among the most important concrete actions businesses can take right now to better prepare themselves for the fallout from climate change. Using this information, companies can help mitigate the risk and upskill employees to ensure they are fully prepared for the impact across all parts of the business. Working with insurers and risk partners will help transfer any residual risk. Climate change-related risks affect everyone, but preparation now is key to limiting the cost further down the line and ensuring businesses and economies continue to thrive.

Pages: 21

In recent years, there has been a marked rise in the consideration of environmental, social, and governance (ESG) factors in investment decision-making. However, ESG analysis is still not part of mainstream investment analysis. We assert that heavy investment intermediation (e.g., from consultants, ratings agencies, and ESG fund managers) is a serious impairment to the continued expansion of ESG analysis into investment practice—that is, investors have come to over-rely on third parties to conduct ESG analysis for them, which perpetuates a rift between the conventional financial analyses, which investors perform themselves, and the ESG analysis which they mostly outsource. While it would benefit many investors to undertake more ESG analysis directly, there are two main barriers to their doing so: the difficulty in assessing relevant ESG datasets and the challenge of integrating ESG data into their standard processes for analyzing risk and return. We propose a concept, Resilience, which addresses both of these barriers by serving as an analytical filter for ESG datasets. We discuss how Resilience analysis can be used to study situational materiality of ESG factors in the context of shocks. We suggest suitable technologies that could aid investors in conducting Resilience analyses.

Pages: 20

Investment management is a knowledge-intensive activity. For decades, practitioners and academics have studied the dynamics of financial markets to develop successful investment strategies. The reality is that the success rate has been mediocre at best. With the surge in technological developments and digitization, a new area has started. Significantly more data becomes available as well as new techniques to analyze this data. This offers an exciting new approach to investment management. This chapter explores the opportunities the new technologies offer and to what extent it boosts the knowledge base and the creation of new knowledge. This chapter describes some real cases, but it does not provide the reader with the holy grail; we expect significant progress in this field in the years to come.

Pages: 10

The twenty-first century has seen a new group of long-term investors emerging, which includes some of the world’s largest sovereign wealth funds (SWFs), public pension funds, central bank reserve funds, with more than $30 trillion in assets under management. As largest asset owners of the world, they are the powerful ESG guardians, applying their “ESG enforcement” expertise from carbon energy sector into the new digital economy. These long-term investors have shaken off their traditional, passive investor roles and stepped into the vanguard of the digital transformation we are all living through. They are increasing their engagement with the companies in which they hold meaningful stakes—especially in the emerging tech unicorns, uniting to counter livestreamed shootings, relying on AI to monitor the conduct of portfolio companies, chiding the management of others, and rebalancing their portfolios to de-risk them for climate change and technological disruption. Meanwhile, using new technologies, the asset owners are becoming better ESG investors across the board.

Pages: 18

The Digital Twin concept as a virtual information model, representing the “real” world was first developed for the manufacturing industry. The progress of information management and information technology is supporting the application of this concept to the finance industry. The ubiquitous digitalization is translating everything (products, services) into data. Information-intensive industries use these enormous amounts of data in combination with tools like Artificial Intelligence to optimize existing value chains (product design, service management etc.), ultimately arriving at a comprehensive digital ecosystem. Digital ecosystems adopting the Digital Twin concept to finance are, in a first step, a mirror of the physical “real” market. In a second step, the proposed approach transforms the mirror into a digital master platform that provides new steering alternatives for physical systems and thus economic markets. This concept offers the possibility not only to replicate the markets but to actively influence them: there will be the chance to integrate the principles of responsible management as drivers of economic transformative and sustainable disruption.

Pages: 23

In this chapter we discuss a range of ESG data problems and other factors, including the built-in rating biases of the raters and rankers, that inhibit the efficient allocation of capital needed to help achieve our shared goals of sustainable economic development and a carbon-free economy. A growing area of measurement in the sustainability space is artificial intelligence and technology used to measure the economic cost of a company’s activities on externalities. These tools may evolve into a potential way to help inform investment decision-making, overcoming the distortions created by “greenwashing” at both the company and the investment manager level, as well as by the raters and rankers. We conclude with suggested enhancements and necessary steps needed to help answer the key question: how do we allocate scarce natural, human, social, and manufactured capital to better allocate capital to help transition to a net-zero sustainable economy?

Pages: 16

This chapter, Assessing ESG from a Position of Wealth, explores the attitudes and impact of high-net-worth individuals (HNWIs) − those with discretionary investable assets of more than USD1 million—in terms of their appetite for sustainable investing (SI) and Environmental, Social, and Corporate Governance (ESG) agendas. Further, it offers technology solutions for financial institutions seeking to support their investment goals. While HNWIs may represent only 1.1% of the world’s population, they control 46% of global household wealth (2020), firmly positioning them to affect ESG growth. The chapter overlays ESG maturity with psychologist Abraham Maslow’s 1943 hierarchy of human motivation. Even now, in the technology-driven 2020s—age, geography, gender, and socioeconomic status all affect reason and needs. HNWIs tend to safeguard and grow generational wealth with long-term horizons. They represent a narrow social stratum uniquely positioned to balance personal values with financial value. Increasingly, affluent individuals are weaving a range of sustainability initiatives into their investment decisions.

Pages: 22

This chapter traces the evolution of sustainability data since the dawn of extra-financial reporting and maps the fundamental regulatory trends that have led to the development of a more harmonized Environmental, Social, and Governance (ESG) reporting landscape. The author offers a comparative analysis of financial and sustainability disclosures, drawing on parallels between the evolution of these two distinct but interconnected reporting regimes. The chapter evaluates the interplay between a multitude of largely voluntary ESG reporting frameworks and standards and mandatory ESG regulatory initiatives that have emerged on a global and national scale (e.g., GRI, SASB, TCFD, EU Taxonomy, SFDR, among others) and shows how the core demand for transparency and disclosure of sustainability data is afflicted by a range of challenges regarding the quality, consistency, and comparability of ESG information. As a consequence, the current state of sustainability disclosure is insufficient to enable financial market participants to effectively and meaningfully integrate ESG data into investment and financial decisions and this in turn hinders the successful implementation of a global net-zero trajectory and the allocation of capital toward more sustainable and resilient investment opportunities. The chapter underscores the pivotal role that a next-generation technology infrastructure, underpinned by a robust data governance mechanism, can play in improving the state and transparency of sustainability disclosure. Scalable and easy-to-use technology is certain to contribute toward the democratization of ESG data through greater automation, quality assurance in real time, as well as capacity-building that helps stakeholders more easily navigate an increasingly complex reporting ecosystem. This in turn would represent the fuel that enables markets to reach a better-informed, data-driven, and sustainability-focused pathway fit for the twenty-first century.

Pages: 23

We explore key technology issues, risks, and opportunities through data, cases, and examples that are often absent from the ESG discussion. They go on to make the case for an ESGT—ESG plus technology—approach to intangible risk and opportunity both at the corporate level and from the stakeholder’s perspective. Pointing to developments in Web.3, digital chatter, and the connection of advanced technologies to environmental challenges, among other examples, the authors argue for incorporating ESGT intangible risk and opportunity management into strategic planning, product and service R&D, as well as technology and ESGT governance. The authors conclude that an era of exponential technological change and disruption requires leaders everywhere to up their game and engage in exponential responsibility taking.

Pages: 13

This final chapter will show that we have no option but to master sustainability by deploying technology and finance effectively. The shift from physical to digital is on its way, and technology is accelerating manufacturing from global to local, dematerialisation, and sharing towards a circular economy. Digital is a prerequisite to green electrification, but we still have a long way to go. Finance powers innovation, but this also transforms finance. Financial technologies are used to automate investments, insurance, trading, banking services, and risk management. Finance is going digital, and distributed ledger technologies will transform financial markets. Greenwashing is likely to diminish due to increased transparency (supported by technology) and mandatory ESG reporting, although geopolitical ESG risk showed its ugly face in the war against Ukraine. It is time to rethink how markets integrate ESG towards a healthy planet and a prosocial society that makes our children proud.