The rapid growth in the number of environmental, social and governance-data providers is good news, according to Yannick Ouaknine, head of sustainability research at Societe Generale’s Bernstein Group. This is mostly because the investment being made by serious data providers is a sign that the shift to embedding these metrics is becoming universally accepted.
However, a greater plurality in third-party providers can create more work for ESG businesses at banks. SocGen needed to put in 1,800 hours of work on a recent project that analysed different data sets provided by vendors around companies’ Scope 1,2 and 3 emissions.
As well as identifying which providers are best for various countries and industries, the project helped clarify the need for banks such as SocGen to add in its own intelligence to models that supposedly already use artificial intelligence for carbon reporting.
“SBTI [Science Based Targets Initiative] is a linear projection of future emissions based on backward-looking trends – so data providers will publish that a specific company needs to reduce by 8% a year, for example, to achieve the net-zero carbon targets they have adopted,” says Ouaknine.
He uses the example of Ferrari – not a company that jumps immediately to mind with many ESG investors and analysts. Using recent data, that negative assumption would be supported, however, Ferrari has also announced an ambitious carbon strategy, supported by granular information that banks such as SocGen can evaluate. That, Ouaknine says, makes Ferrari one of the leading car manufacturers in ESG today.
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“Ferrari has made strong commitments, and we are very sure they are going to be able to meet them, so this is why you need to be able to put intelligence on top of the data,” says Ouaknine. “That can create some disruptive conclusions that are otherwise lost by just using the same data as everyone else.”
The same intelligence needs to be overlayed on every single company covered by the bank.
“We need to add in qualitative data about new policies or strategies being employed by companies to make an assessment on whether the company’s ambition is high enough for the industry, and to be able to say whether we are convinced that a company is going to achieve its targets,” says Ouaknine.
The gap between data availability and data interpretation is where SocGen really excels – and it can provide intelligence that can be used by clients and investors alike.
It can also be used by bankers to create financial intelligence for companies, using the underlying data to model a potential ‘greenium’ and other financial advantages that can be derived from sustainable financing structures.
This interlinking of industry and financial intelligence over the top of ESG data is why SocGen has sought to create internal communities to access, understand and interpret ESG data for its clients – both corporates and investors.
“This community includes research, the corporate social responsibility department and the investment banking teams,” says Eric Bonnin, managing director in SocGen’s energy transition and sustainable finance advisory team. “It enables us as a bank to make the best possible analysis and interpretation from the data sets that we have created, which in turn adds huge value for our clients accessing our intelligence – not just our data.”
However, that is not to say that all data must be delivered through interpretation. SocGen has also put together a suite of benchmark tools that provides clients with an instant snapshot about where they rank against industry peers. For example, the bank’s Client 360 tool consolidates key client information, including ESG internal and external data, while the bank’s TOP tool analyses transition opportunities in different industry sectors.
When combined, these provide simple metrics (such as where companies rank in terms of current decarbonization status, expected decarbonization status, as well as a quantitative assessment of the company’s business transition plan), as well as possible opportunities to improve the company’s baseline performance.
We need to add in qualitative data about new policies or strategies being employed by companies to make an assessment on whether the company’s ambition is high enough for the industry
Yannick Ouaknine
Not only does this create greater client awareness, but it also generates opportunities for SocGen bankers to engage with clients about improving these metrics. This relationship-building strategy explains why SocGen’s ESG team is tasked with explaining these databases to their relationship bankers.
While these efforts are costly – another reason Bonnin cites for creating communities that can optimise the effectiveness of this ESG data budget – they create differentiation for SocGen in the market.
This competitive positioning is important, but the bank is also committed to collaborating with the wider financial industry to improve the approach to collecting, reporting and interpreting ESG data globally.
In 2023, the bank focused on driving this sector-wide improvement through its Global Markets Incubator, which saw it make investments into startups that address ESG data and impact measurements, among other business models.
The companies selected by SocGen from more than 140 applications included startups that address some of the biggest ESG challenges in the finance industry, such as carbon emissions quantification, impact tracking and measurement, Voluntary Carbon Markets data and biodiversity.
