ESG Portfolio Analysis & Optimization

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ESG Portfolio Analysis & Optimization

March 23, 2022

The pressure on companies across all industries and sizes is mounting to get sustainability right. And while focus industries that have a larger impact on climate change due to their energy or carbon footprint intensity, the European and US regulators this time round have picked yet another conduit: They will use the Financial Services and Capital Markets as a leverage for faster and more holistic change agenda. The reasoning is as simple as it is elegant: If investors have to decide on where they put their money, let us make sure that they also have to think about the ecological choice they are making when taking these investment decisions.

 Sustainability Change Pressure

It is this regulatory change strategy that has put banks and investment managers into the spotlight of sustainable change. They will have to assess the impact and quality of their client’s green transformation. And they will have to do so on both the credit book as well as the investment book.

Look at the following sequence diagram to imagine how such a future exchange between a bank and its corporate credit client might sound going forward.

Corporate->Bank: We'd like to increase our credit line!
Note right of Bank: Bank ponders
Bank-->Corporate: Sure, but first show me your ESG impact report
Note left of Corporate: OMG WT*
Corporate->Bank: Can we simply send our CSR report?
Bank-->Corporate: If it is TCFD or EU NGD compliant
Corporate->Bank: Guess we'll get back to you in three months
Bank-->Corporate: Or use our "Sustainable Transformation Service" today

Of course neither banks nor their corporate clients are very keen on getting their arms twisted into assisting government or regulatory change. But as the pressure comes at them also from their own clients and their own supply chains and partner networks - why not embrace the change in a way that also pushes new sales and creates new revenue and bottom-line opportunities.

Most banks have a whole swath of so called green products. But from 2023 onwards, they need to quality control that these labels can actually stand up to the test and that accurate processes and frameworks are put in place, to audit the product providers, the clients and the partners. And while this is relatively straightforward when dealing with large and listed companies it gets a lot more complex when looking at the unlisted companies and the huge number of small and medium sized corporates.

Jointly with a Swiss Private Bank we have implemented a portfolio measurement use case that allows to semi-automate the manual assessment work and convert the ugly inquisitional client assessment into a mutually beneficial and strategic client dialogue.

Join us for a physical evening workshop at the Frankfurt TechQuartier on April 4th 2022 starting from 6pm CET to dive deeper into this use case and our learnings while developing it.

Please register using the form below if you want to enjoy some drinks at the TQ Bembelbar and are interesting to discuss the catalytic opportunities of ESG for Finance.