Finextra-the-future-of-esgtech-2023

1. The FUTURE SERIES 2023 THE FUTURE OF ESGTECH 2023 A SIBOS SPECIAL EDITION

2. 2 THE FUTURE OF ESGTECH 2023 A SIBOS SPECIAL EDITION | THE FUTURE OF ESGTECH 2023 Finextra Research 77 Shaftesbury Avenue London, W1D 5DU United Kingdom All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the publisher. Telephone +44 (0)20 3100 3670 Email contact@finextra.com © Finextra Research Ltd 2022 Web www.finextra.com

3. CONTENTS 00 Working together for a sustainable Sibos a foreword from SWIFT .............. 4 01 Introduction ......................... 8 3 | THE FUTURE OF ESGTECH 2023 02 Unprecedented challenges, uncertain times ................. 9 03 The digital landscape and technological opportunities an expert view from NayaOne ... 14 04 Driving sustainability and ethics .......................... 18 05 Standardised entity identification in ESG reporting an expert view from GLEIF ... 20 06 Succeeding in uncertain times .............. 23 07 Conclusion ........................ 26 08 About Finextra .................27 09 About SWIFT .....................28

4. 00 WORKING TOGETHER FOR A SUSTAINABLE SIBOS A foreword from SWIFT Jaime Lee, Head of Sibos, SWIFT 4 | THE FUTURE OF ESGTECH 2023 At Sibos we have a clear focus on community and green initiatives. As part of our long-term Sibos strategy, we are committed to reducing our environmental impact and driving positive change in the world around us. SWIFT is taking the next ambitious step towards a low-carbon future by adhering to the Science Based Targets initiative (SBTi). By joining this worldwide climate action initiative, we are pledging to set ambitious, science-based emissions reduction targets in line with a 1.5 ºC future. We recognise sustainability is also fundamental to the business strategies of Sibos participants and exhibitors. Working closely with the Sibos community, our long-term aim is to host one of the most sustainable global events and lead much-needed change across the industry. Sibos 2022 includes a broad range of initiatives to support our commitment to sustainability and integrate the topic throughout our conference programme, debating key issues such as ESG data, ethical investing, and energy transition. Protecting our environment Our priority is to cut carbon emissions generated from Sibos by working in partnership with all our stakeholders to lessen the impact of travel and transportation, reduce waste, and optimise resources.

5. Promoting biodiversity and natural water management This year we are providing support to a nature conservation project in Kempen-Broek in the Netherlands together with the World Wildlife Fund (WWF) and ARK Nature. Kempen-Broek is a chain of nature reserves in Belgium and the Netherlands. ARK, with partners like WWF and Natuurmonumenten, are working to turn this patchwork of nature areas into a robust, connected wilderness area. Originally the area was low lying wet marshland fed by large and small brooks. The marsh functioned as a sponge; absorbing huge amounts of water and releasing it gradually. By turning current high-intensity agricultural land back into marshland and restoring the brook system, we will be able to re-establish the ‘sponge’ function of the system. This contributes substantially to the water safety of the cities and villages downstream and to combatting droughts in the summer; crucial in these times of climate change. 5 | THE FUTURE OF ESGTECH 2023 Sibos will provide financial support to purchase a plot of agricultural land in the Netherlands, close to the Belgian border. This plot is the missing link between two other nature areas that already act as climate buffers and contribute to the connectivity of species like red deer and wild cattle. Reduce, reuse, recycle Sustainability is at the heart of the design and production of all 2022 Sibos and SWIFT exhibition features, giving the event a brand-new look and feel. We are limiting the volume of materials used, sourcing locally to prevent unnecessary transportation, and choosing options that can be rented, reused, or recycled. You will see less carpet at Sibos this year, and where used it is 100% recyclable. It is produced using zero water and latex and requires 85% less energy, resulting in a 55% reduction in carbon emissions compared to traditional event carpet. Discover is leading the way in smart design. From hired lighting to scaffolding and robust cardboard stages and walls, it is built using 100% sustainable branding and structural materials. Sustainability guidelines are provided to all our exhibitors to help them create and manage sustainable stands, including limiting energy consumption by encouraging them to order day power instead of 24-hour wherever possible.

6. We have also asked our exhibitors to think about sustainable giveaways, if they were to use any on their stands. Last but not least, exhibitors can repurpose and recycle any unavoidable waste via a partnership with our venue, the RAI Amsterdam. Our participants also have a vital role to play. We are asking them to bring a reusable bottle with them to refill at the water fountains around the RAI. With every week-long Sibos pass, we are providing a free transport pass so participants can make the most of Amsterdam’s efficient public transport network which runs on green energy. These transport passes are digital QR codes, which save resources. We’ve also introduced a paperless Newscorner for participants to access newspapers and magazines, and will offer digital brochures on the SWIFT stand. 6 | THE FUTURE OF ESGTECH 2023 Buying local, catering for all tastes Sibos offers a range of sustainable, locally sourced, seasonal catering to attendees, with plant-based and healthy options available. From herbs and vegetables grown in the RAI’s own greenhouse, to sausage and pasta made in Amsterdam’s city centre, participants will be well-fed and energised by the food they are eating. Caring for the community Giving something back to the community is an integral part of Sibos. Sibos 2022 is supporting the local foundation Samen Lachen (Smile Together), who organise monthly trips for underprivileged children aged four to twelve across the Netherlands to enjoy a day at an amusement park, museum, zoo, show, or playground. With over 7% of households in the Netherlands living below the poverty line, the important work of Samen Lachen not only enables children to escape difficult situations at home and bring much needed happiness into their lives, but also allows parents to enjoy some vital time to rest and recuperate. We are also using the local workforce wherever possible to staff Sibos, and encouraging our partners to do the same, helping contribute to the local economy and leave a positive legacy.

7. Promoting equality and diversity As we bring the global financial community together, Sibos is naturally built on diversity. Every year, the Sibos community comes together for a special Women of Sibos networking event to celebrate the importance of female leadership in the financial industry. In addition, the STAR scholarship fosters the development of women in finance, providing them with opportunities to expand their networks and expertise. Each year, leading banks from around the world are invited to nominate a high potential, ambitious female employee to participate. 7 | THE FUTURE OF ESGTECH 2023 Sibos also supports the Inclusive Panels Charter and our conference programme is carefully curated to ensure it features speakers from a broad range of regions, cultures, and backgrounds. The panel reflects the inclusivity and diversity of the Sibos community and champions the importance of these issues in our sessions. RAI Amsterdam convention centre The RAI Amsterdam, the first European conference centre to be platinum-certified by EarthCheck, will play host as we return to an in-person event at Sibos 2022. The RAI has placed sustainability and corporate responsibility at the heart of their operations strategy, developing an approach for events that makes minimal impact on the environment. Environmental factors have long been one of the deciding factors in venue selection for Sibos, and the rigorous efforts demonstrated by the RAI over the last 15 years to be a sustainable location made it a venue of choice, fully aligned with Sibos’ long-term vision and strategy. Discover some of the initiatives being driven by RAI Amsterdam that make it the ideal environment for Sibos 2022 as we bring the financial industry back together this year, including the city heat energy powering the venue, 0% landfill waste policy, and tackling youth unemployment.

8. 01 INTRODUCTION While new risks emerge, so do new opportunities for financial services providers to lead technological innovation and drive positive global change. The key question at this year’s Sibos event and into 2023 will be around how success can be measured, and whether organisations that pave the way for the future of banking will be able to adapt to these new priorities and shifting geographical landscapes. 8 | THE FUTURE OF ESGTECH 2023 Alongside scaling forward-thinking innovations and managing risk in an uncertain world, in 2023, banks must leverage innovations such as AI, machine learning, big data and privacy enhancing technologies to deliver operational efficiencies and an enhanced service offering. Further, by utilising new initiatives such as Banking as a Service (BaaS), financial players can increase their banking footprint through networks of third-party applications, while at the same time, modernising their legacy platforms and products. With this level of innovation to hand – in a world where financial services providers are being forced to adjust to geopolitical, regulatory, and cybersecurity risks – business models must also evolve to ensure success in uncertain times, whether it be the Covid-19 pandemic, climate change or any other global issue that the United Nations’ Sustainable Development Goals aim to achieve. Driving sustainability and ethics will be pivotal in 2023. This report, featuring expert views from SWIFT, GLEIF, and NayaOne, will explore issues such as climate disclosures, ESG standardisation, greenwashing, and financial inclusion. In addition to this, key insights from the Abraham Kuyper Center, Barclays, BBVA, HSBC, MUFG will explore how organisations lead positive change across the globe.

9. 02 UNPRECEDENTED CHALLENGES, UNCERTAIN TIMES Significant progress has been made over the last 12 months with regard to the implementation of tangible regulatory and governmental action towards sustainability - the EU taxonomy for sustainable activities is a leading example. 2021 also saw a sharp rise in corporates committing to net-zero pledges, but ESG progress across financial services remains definitively in its early days. 9 | THE FUTURE OF ESGTECH 2023 Financial institutions are paying close attention to action which must be taken to meet sustainability requirements and prepare for a future where ESG challenges are met head on. In the wake of the global Covid-19 pandemic, 2022 marks the beginning of a new era of sustainability-focused financial services, with less attention on grandstanding and posturing, the industry is ready to call out greenwashing, and take action which prioritises rapid, tangible results. Achieving these results will require a certain element of risk, as financial services pushes toward a new landscape where sustainability is not just desired but mandated. However, while new risks emerge, so do new opportunities for financial services providers to lead the way in technological innovation and driving positive global change. “ New technologies and a focus on innovation requires financial services providers to be increasingly automated, data-led, open, and agile. This is more than just staying competitive with our peers, technology also gives us ways of establishing solutions for Barclays Europe clients as they too travel on their digitalisation journey. ” Helen Kelly, Head of Corporate Banking, Barclays Europe

10. Helen Kelly, head of corporate banking, Barclays Europe, explains that every industry is going through a shift in digital transformation, none more so than financial services. As the wider financial services industry becomes more interconnected and digital, new technologies offer significant opportunities, and financial service providers continue to face new challenges. Kelly adds that Barclays Europe continues to invest significantly in digital as the bank views it as a cornerstone of its continued growth journey in Europe in the short term. “New technologies and a focus on innovation requires financial services providers to be increasingly automated, data-led, open, and agile. This is more than just staying competitive with our peers, technology also gives us ways of establishing solutions for Barclays Europe clients as they too travel on their digitalisation journey.” 10 | THE FUTURE OF ESGTECH 2023 Barclays Europe has approached this new reality through continued investing in its technological infrastructure in recent years, as clients demand services that are secure but also easy to access. Kelly observes that an example of this is the Barclays. net platform which enables corporate customers to view and manage their accounts and make payments. The interactive system offers the capability to view and control Barclays Europe accounts across different jurisdictions on a single platform. Innovation and digitisation offer extraordinary advantages for society as a whole, states a spokesperson for BBVA, but everyone must do their part to ensure that no one is left behind in the process. This is what drove BBVA to commit to transformation and digitisation over the last decade. These enormous efforts provided BBVA with capabilities that have positioned the bank as one of the digital leaders in the global financial industry, and a global benchmark for responding and reacting to the challenges prompted by the Covid-19 pandemic. The low-carbon economy and negative emission technologies will give rise to a new economy and generation of ESG tech start-ups that are critical to the future, predicts Natalie Blyth, global head of commercial banking sustainability at HSBC. “In addition to traditional banking activity, we believe we can add significant value and help accelerate these firms to becoming the unicorns of tomorrow through partnerships, referrals, and early-stage financing including venture debt and venture equity propositions.” Importantly, successful businesses will be those that can adapt to new priorities and shifting geopolitical landscapes, and at the same time, paving the way for the future of banking. “It is fair to say that the volatile environment over the past 24 months has tested businesses to deliver on their current and future objectives,” argues Kelly.

11. “ We’re standing on the edge of a sustainability industrial revolution that will go deeper and faster than any before it. Business models will be remodelled, ways of working reimagined and supply chains reconfigured as all aspects of sustainability, from inclusive finance and labour rights, through to the net zero transition, are addressed. A new economy will emerge, as the businesses of today adapt successfully or face exclusion and the start-ups of tomorrow rise rapidly. ” Natalie Blyth, Global Head of Commercial Banking Sustainability, HSBC 11 | THE FUTURE OF ESGTECH 2023 From the Barclays Europe experience, successful businesses are those which will have robust scenario planning and risk management strategies in place to take advantage of opportunities. There remains a requirement for pan- European banks such as Barclays Europe to act as a counterparty between West and East for commerce and trade. Kelly adds: “Going forward we will continue to assist clients on their global needs and helping them achieve their long-term goals. The shifting geopolitical environment offers opportunities as companies still need to be international, but companies will also need to embrace these opportunities to avoid falling behind.” Emphasising the extent to which we should expect environmental considerations to impact our economy, Blyth states: “We’re standing on the edge of a sustainability industrial revolution that will go deeper and faster than any before it. Business models will be remodelled, ways of working reimagined and supply chains reconfigured as all aspects of sustainability, from inclusive finance and labour rights, through to the net zero transition, are addressed. A new economy will emerge, as the businesses of today adapt successfully or face exclusion and the start-ups of tomorrow rise rapidly.” Blyth continues that the sustainability risk agenda is evolving, and banks are building sustainability risk capabilities to assess own and client transition risk, prevent greenwashing, and managing reputational risk. This will better support the new economy needs, optimise capital allocation and influence positive change.

12. This year, innovation and digitisation remain at the heart of BBVA’s overall strategy in three key ways: 1. As a key lever to becoming a distinctive bank for our clients thanks to our unique value proposition to improve the financial health of our customers and clients, and to help them make a transition to a more sustainable economy; 2. As the main driver to accelerate profitable growth, incorporating the latest technologies as a differentiating element when it comes to developing and putting new solutions into the hands of our clients, entering new markets using our digital capabilities and supporting innovation across all sectors (to be the bank of the companies that are defining the future and redoubling our investments in disruptive models); and, 12 | THE FUTURE OF ESGTECH 2023 3. As a result of this commitment to innovation and digitisation, 44 million of the Group's customers interact with the bank through digital channels today; more than 66% do so on the mobile app; and 70% of sales take place digitally. Echoing Blyth’s comments, Ranjana Clark, head of global transaction banking at MUFG states: “Times of great change bring opportunity. For companies of all sizes, it is a chance to innovate, adapt, and pursue new markets. It starts with putting clients and innovation at the centre of everything that you do.” To navigate a rapidly changing business climate, it is essential to listen to clients’ needs and stay abreast of industry and sector trends, while harnessing the power of technology and talent in order to keep innovating, furthers Clark. MUFG takes a holistic approach to decision-making, by considering the geopolitical environment, regional market trends, and competitive landscape. Data and analysis support both near-term and long-term priorities, including product investments. When it comes to technology, it is all about digitalisation and integration for the bank, and Clark notes that the velocity of uptake of these trends surged with the pandemic and increased globalisation. Within the transaction banking arena, CFOs and treasury professionals are seeking digital working capital solutions that streamline payments, accelerate cash flow, and increase efficiencies. Global commercialisation and trade are fuelling this business need, which in turn are driving cross-border payments.

13. We are seeing the move to real-time payments (RTP) is converging with the need to meet the demand for global payments, and digital payment choices are just one area shaping the future of banking. Also front-and-centre are electronic tools that provide treasury decision-makers with a comprehensive view into their working capital across the organisation, subsidiaries, and regions. Clark concludes that MUFG clients are pursuing ways to integrate payables and receivables to give their treasury teams greater insights into their vendor spend. Times of great change certainly do bring great opportunity. While it is reassuring to observe leading banks begin taking real action toward a more sustainable future, they must remain open to change and agile enough to turn their ambitions into reality. 13 | THE FUTURE OF ESGTECH 2023

14. 03 THE DIGITAL LANDSCAPE AND TECHNOLOGICAL OPPORTUNITIES An expert view from NayaOne Oli Platt Product Manager, NayaOne 14 | THE FUTURE OF ESGTECH 2023 The unprecedented risks of climate change and the rise of conscious consumerism in the post-pandemic era have prompted industry stakeholders and policymakers to acknowledge the importance and impact of ESG practices and policies. This has driven a notable shift in mindset across the financial services industry who need to respond with both strategy and action to serve two of their primary stakeholders: their regulators and customers. Banks are working diligently to improve their ESG posture to respond to the pressures, for example, publishing voluntary ESG disclosure reports, including ESG focused due diligence on their supply chain. In turn, there has been an explosion in firms delivering ESG solutions they hope can satisfy the needs of the financial services industry as they seek to understand exposures and mitigate where appropriate. Fintechs can play a pivotal role in accelerating the implementation of ESG policies in large financial services institutions. Fintech organisations are efficient, consumer-centric, responsive and well positioned to manage and drive impact qualitatively and quantitatively. Products and services that are oriented toward ESG use real-time data, rating engines, inclusion initiatives and measurement tools to: • • • • Incorporate ESG solutions into investment analysis and the decision-making processes. Seek appropriate ESG reporting and disclosures Enable carbon footprints, across scope 1-3, to be understood and quantified Promote the acceptance and implementation of good ESG principles within the financial industry effectively

15. Partnerships between financial institutions and third-party technology providers ensure the best possible outcome is delivered to the end user by enhancing financial institutions' technical capabilities and capacity. Leveraging networks to forge partnerships to solve problems both for business units and society has become a recognised way of working. However, for the financial services buyer of these services, this raises a host of new questions. Who do we partner with? How do we know the solution can deliver what we need? Can the solution scale to support us? What are the dependencies, both on the input and output so we can integrate the solution into our processes? 15 | THE FUTURE OF ESGTECH 2023 Answering these questions for new technology implementation has been the role of the CTO’s office for decades. Unfortunately, experience has not made the task easier. The regulatory burden and security challenge has grown markedly, and understandably, in the last two decades. Despite their best intentions, CTOs can still spend nine-18 months identifying and evaluating a fit-for-purpose solution. At Fintech Week London, NayaOne CEO Karan Jain noted that effective evaluation of third-party technology requires stakeholders who partner quickly, experiment at pace and ideally explore more than one solution. This is mutually beneficial for the financial services companies and the technology providers and serves the end customers by shortening the time to market. The onboarding processes and compliance requirements are often costly and incredibly time-consuming for both financial institutions and fintech firms. At Fintech Week London, NayaOne CEO Karan Jain noted that effective evaluation of third-party technology requires stakeholders who partner quickly, experiment at pace and ideally explore more than one solution. This is mutually beneficial for the financial services companies and the technology providers and serves the end customers by shortening the time to market. One way to deliver this rapid experimentation is through sandboxes. These are secure, off-estate, technology environments to run experiments. Firms can bring a range of technology suppliers to evaluate using synthetic or open-source data. Exploring and testing in this way typically identifies a preferred solution in 90% less time and at 80% less cost of existing proof of concept processes. The technical evaluation that takes place in a digital sandbox, supported by ESG data enables a financial institution to not only evaluate multiple tech providers focused on the specific use case but to select the solution most suitable for their technology environment. This enables the financial institution to develop an ESG strategy that optimises both business processes and customer experience.

16. NayaOne offers a comprehensive platform for clients seeking to improve their ESG posture. Firstly, an ESG marketplace with pre-vetted climate tech providers available for the client to explore. The technology delivering these solutions is available through the NayaOne gateway – meaning a single connection to NayaOne gives access to all suppliers. ESG datasets, both synthetic and publicly available, are available in the Data Marketplace and these can be exposed to the technology suppliers in the sandboxes where clients run their experiments. This end-to-end service aids rapid experimentation, evaluation benchmarking, and the launch of sustainability propositions to customers. 16 In June 2022, the UK Digital Sandbox powered by NayaOne, was used for the FCA and City of London’s sustainability cohort. Start-ups and mid-sized firms engaged APIs and ESG datasets to solve use cases related to consumer understanding, and the transparency, disclosure, or validation of ESG data. | THE FUTURE OF ESGTECH 2023 The end of cohort report concluded that “continued access to the digital sandbox’s platform and services, particularly the data assets, would generate significant benefits for participants” validating both the complexity of ESG solution exploration and emphasising the need for a digital sandbox and ESG data. The use case below demonstrates how fintechs with related capabilities can be brought together in a sandbox to present an end-to-end solution benefitting both the business process and the end user. Use cases The use-case: A bank wants to offer a new product to their commercial customers. As their trusted bank, they want to support customers in their journey to carbon neutral. The bank has concluded that the high carbon areas their customers struggle to understand across all three scopes of emissions are: 1. Their employees' company card spending, 2. Their cloud use, 3. Their travel, and 4. Their hardware. The customers then need to reliably offset all the carbon output. This means that the solution must be end-to-end, using open banking payments data, customer behaviour, and carbon offsets.

17. To help with this the bank creates a solution combining Meninga, Climatiq, Ditch Carbon and Lune: Before building their new solution, the bank will need to access open banking and scenario based data, this is provided by NayaOne within the digital sandbox environment. • Meniga’s solution is used to calculate the carbon emissions resulting from the transactions of the company card. Climatiq’s solution calculates carbon emissions from their cloud use and travel. Ditch Carbon calculates the carbon emissions associated with the company’s hardware. Finally, all the emitted carbon will be summed, and the offset identified with Lune. • • • 17 | THE FUTURE OF ESGTECH 2023 The ability to stitch together multiple technology providers enables a financial institution to accelerate product build using third-party and evaluate how these solutions can co-exist with existing technologies to enhance and optimise the business process or user experience. This use case demonstrates that through partnerships at every stage of the value chain a bank is able to stitch these to deliver a robust ESG solution directly to the end-user. Therefore, emphasising the power of partnerships between financial services institutions and technology providers.

18. 04 DRIVING SUSTAINABILITY AND ETHICS Although regulatory and governmental action towards sustainability has been taken with examples such as the EU taxonomy for sustainable activities and numerous net-zero pledges made in recent years, “differences in the concept of materiality and the classification of sustainability activities will complicate efforts to create global standards,” according to Moody’s ESG Themes for 2022. This trend is set to continue in 2023 despite all the steps taken across ESG disclosure in 2022. 18 | THE FUTURE OF ESGTECH 2023 It must be noted that for decades, sustainability and ESG disclosure was conducted on a voluntary basis, but as the International Sustainability Standards Board and European Commission increasingly impose standards, it is evident that a widely adopted initial framework will be established, with the emergence of national and regional taxonomies that ensure interoperability across all organisations. Further to this, after tackling climate, new taxonomies are expected to cover a larger set of economic activities that are valued by a larger range of financial institutions. As explored by Moody’s: “Questions around interoperability and compatibility of national taxonomies will grow in importance for investors and regulators. Common language that is science-based and provides the required level of detail will be important to scale taxonomy-backed green and sustainable finance activities globally.” Financial institutions are in the best position to contribute scaling these taxonomy-backed activities and contribute to change across ESG goals, and it could be argued that in 2023, they have a moral responsibility to do so. According to Dr. Katrin Gülden Le Maire, advisor and researcher at the Abraham Kuyper Center, explains that for this to be achieved, data and information is crucial. “Companies should provide as much in-depth and transparent information concerning their climate disclosures, ethical investing, and financial inclusion services/products as possible. Many of them already adhere to and abide by standards set as such by the PRI [Principles for Responsible Investment]. This is laudable and should be further encouraged,” Dr Gülden Le Maire mentions.

19. However, to reach success, banks require comprehensive ESG strategies to ensure they are meeting the current standards and are preparing for those that are incoming. While consumers demand their financial providers ensure the way they conduct business is sustainable, stakeholders are also expecting their banks to have an awareness of whether their investment decisions will impact the environment. “ Technology and partnerships are key to supporting them at scale to address critical pain points and develop the tools such as carbon calculators or ESG scoring that can help them navigate ESG disclosure and standards. Technology such as supply chain transparency platforms will also support embedded solutions for sustainable financing that require ESG target-setting, performance disclosure and certification. ” 19 | THE FUTURE OF ESGTECH 2023 Natalie Blyth, Global Head of Commercial Banking Sustainability, HSBC Banks are expected to have this awareness, but for smaller fintech startups or SMEs, this can be problematic. HSBC’s Natalie Blyth says that “companies are at very different stages in their transition journeys – from having sophisticated plans in place, through to SMEs who may understand the need to transform but don’t know where to start. These firms have less knowledge, resources, and data than their larger counterparts.” For this to work, this model requires supply chain transparency, and a need for information on how suppliers meet their own ESG goals. However, obtaining this information is not simple. According to Oxford Economics, only 56% can segment suppliers by risk level and category level quickly and easily. Further, only 47% regularly refresh risk mitigation plans to address potential disruptions. Blyth continues to explain that technology is the key to resolving this. “Technology and partnerships are key to supporting them at scale to address critical pain points and develop the tools such as carbon calculators or ESG scoring that can help them navigate ESG disclosure and standards. Technology such as supply chain transparency platforms will also support embedded solutions for sustainable financing that require ESG target-setting, performance disclosure and certification.” In addition to this, specific bodies that attempt to improve climate disclosures, such as the Task Force on Climate-related Financial Disclosures (TCFD), can be a great support. “The TCFD standard, promoted by the Financial Stability Board since 2015, urges entities to specify the resilience of their strategies to climate-related risks (physical and transitional) and opportunities.”

20. 05 STANDARDISED ENTITY IDENTIFICATION IN ESG REPORTING An expert view from GLEIF Stephan Wolf CEO, GLEIF 20 | THE FUTURE OF ESGTECH 2023 The collective, global will to enact standards for ESG reporting has never been stronger. Following the UN Climate Change Conference (COP26) in November of 2021, the International Financial Standards Reporting (ISFR) Foundation created the International Sustainability Standards Board (ISSB) with the goal of delivering a “comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.” This is an important goal, but it does not go far enough. To adequately address issues like climate disclosure, ethical investing, greenwashing and financial inclusion, standardisation for ESG reporting must extend beyond disclosure criteria and begin with the identification of businesses engaged in ESG reporting. Without a clear, standardised and global entity identification system, ESG reports lose value due to the challenging nature of evaluating performance indicators across different reporting regimes or jurisdictions. For instance, consider how a Danish investor’s plans to invest in a Swedish fashion company might change if the company’s Indian subsidiaries do not consider supplier risks. If this particular investor cannot access the relationship information on the company HQ and its subsidiaries through a single data source—ideally in an easily consumable and machine-readable format—how can the investor move forward with confidence? Financial institutions face a similar set of challenges. If a Swedish fashion company applies for a sustainability-linked loan, how can the financial institution analyse the entity’s eligibility for this type of funding and determine its ESG risk assessment in a straightforward and transparent way?

21. Innumerable national and regional standards for entity identification exist around the world, with different identifiers serving national needs. These systems are fragmented, though, and their utility breaks down when companies perform due diligence checks that require reconciling ESG data across geographical borders. The Legal Entity Identifier (LEI) addresses this challenge, providing a standardised system for finding, comparing and consuming ESG data globally. An LEI is a unique 20-character code created for a legal entity that provides complete legal entity clarity and removes doubt about who is who and who owns whom. Because LEIs use a global standard, they set a foundational identity that legal entities worldwide can recognise, agree with, and trust. Administered by the Global Legal Entity Identifier Foundation (GLEIF), the LEI links to competent national business registers, making it much simpler and faster for data consumers to bring data assets together. 21 | THE FUTURE OF ESGTECH 2023 This is particularly true for aggregated data coming from third-party sources. If they carry the LEI on top of their proprietary identifiers, public and private sector data consumers can achieve a higher level of trust in the rightfulness of data and its correct allocation. By tagging entities with the LEI and using it as a data connector in ESG reporting, transparency can be increased for the reporting entity, its related companies, and even to suppliers of a particular firm. This facilitates comparability of ESG data exchange. This level of comparability becomes especially important as new regulations require asset managers to create entity-level reports documenting how climate-related matters are accounted for when managing investments for clients. Already, a number of global organisations are leading the charge to incorporate the LEI into their efforts for positive change.

22. Consider the following initiatives that successfully use the LEI to improve ESG-related processes: • A project by OS-Climate incorporates LEI datasets made available in the Amazon Sustainability Data Initiative (ASDI) in order to drive broader and faster development of climate-aligned financial applications. By storing climate-related datasets in the cloud, the initiative accelerates innovation by minimising the cost and time required to acquire and analyse these very large—an often inaccessible—datasets. Furthermore, by hosting the LEI data on AWS and creating a direct connection between GLEIF’s servers and the AWS S3 bucket, the initiative provides LEI updates every eight hours, making this piece of information available to anyone around the world in a timely manner. 22 | THE FUTURE OF ESGTECH 2023 • The Sustainability Accounting Standards Board (SASB) recommended the use of the LEI in non-financial reporting in Europe in its XBRL Taxonomy. The recommendation applies to companies which have reporting obligations under the ESEF reporting guidelines and recognises the unique role of the LEI as a global and digital entity identification solution for ESG reporting. When the LEI is extended to non-financial reporting, location of firms and supply chains can be collected through publicly available Global LEI Repository at a very granular and transparent manner, which is crucial for assessing physical and transition risks. • The LEI was included in the Greening the Financial System’s (NGFS) progress report on bridging data gaps for linking financial and non-financial information. The report, published in May 2021, suggests that investors can use the LEI as a data connector to mapped identifiers such as Business Identification Code (BIC) and International Securities Identification Number (ISIN) and for linking financial and non-financial information. The LEI is assigned to a legal entity by a GLEIF accredited LEI Issuer. The reference data describing the legal entity is investigated and verified via the local registration authority upon the point of input by teams of experts. Regulation specialists, combined with additional third-party checks and balances, guarantee the accuracy of GLEIF's data bank. And since the LEI and all associated reference data is free for all to access, anyone anywhere can determine if a private or public organisation is who it claims to be. Accessing and being confident in the authenticity of this information allows legal entities to fully trust each other, safeguarding all sorts of ESG investment and trade decisions. For ESG reporting to have its intended impact, data collection must start with holistic and standardised entity identification. This is foundational for creating transparency at the entity level, without which it is impossible to achieve the timeliness, accuracy and reliability required for meaningful ESG reports.

23. 06 SUCCEEDING IN UNCERTAIN TIMES Digital transformation has benefited companies and consumers alike in accessibility, speed, customer experience, and countless other ways, but has also made consumers vulnerable to security and privacy risks. In recent years, the amount of cyberattacks and security breaches to individual accounts has skyrocketed. 23 | THE FUTURE OF ESGTECH 2023 In the wake of rising financial and economic instability, financial institutions are adapting their security protocols and sustainability strategies to the current geopolitical climate. This includes transforming supply chains and confronting disruptions that were brought about by the Covid-19 pandemic. Barclays’ Kelly expounds on the impact the last two years have had on the supply chain and the need for banks to match the needs of their situation: “Recent events highlight how rising prices, and an unpredictable economic environment are driving instability. Complicating global supply chains will be continued disruptions to operations and logistics driven by the pandemic, social unrest, cyberattacks and extreme weather events. Businesses must seize the opportunity to re-examine their companies supply chains for resilient supply chain strategies.” Barclays is providing for current consumer needs by strengthening their data management and IT systems to prevent cyberattacks and prioritising their sustainability agenda. Kelly highlights the need for companies to “create sustainable value for all stakeholders,” by employing the Task Force on Climate-related Financial Disclosures (TCDF) into sustainability regulation and increasing company engagement regarding ESG goals. “Increasing stakeholder expectations regarding sustainability and broader environmental, social and governance (ESG) issues provide the opportunity for a strategic shift in business models,” says Kelly. There has been a change in client behavior and expectations regarding the products and services provided by financial institutions considering how the online services open up the possibilities of risk. As the reliance on third party platforms becomes more integrated into digital and mobile banking, banks must strive to gain customer trust and ensure that their data is protected.

24. A spokesperson from BBVA emphasises how cybercrime has become more sophisticated since the pandemic with criminals hacking into emails, SMS, instant messaging systems, and social media. To ensure that customer privacy is protected, companies must employ AI and automated learning services to create effective cybersecurity strategies. BBVA plans to implement a ‘Zero Trust’ strategy to monitor third parties and integrate privacy training. The BBVA spokesperson underscores the need to invest in monitoring and detection capabilities to prevent security breaches: “New technologies such as Artificial Intelligence, Quantum Computing, Blockchain, 5G networks or the Internet of Things are increasing the opportunities for new user experiences and businesses. However, these opportunities come with challenges that affect privacy, security and the overall customer trust, which is key to the survival of the digital economy. In this context, and from a cybersecurity point of view, organisations have to consider cybersecurity as one of the main elements to face these challenges and to guarantee operational resilience.” 24 | THE FUTURE OF ESGTECH 2023 With the consistent evolution of geopolitical and cybersecurity risks in an increasingly digital world, regulation will adjust accordingly as the financial sector increases its dependency on online services. MUFG’s Clark touches on how MUFG is pioneering digital transformation to improve customer experience and make their global financial services more flexible and agile. “Using an agile approach, we bring together cross-functional teams with a common mission to evolve a component of our business model, operations, or deliver a new product,” says Clark. “We implemented a platform that digitises and automates key elements of the onboarding client journey – changing how we interact with our clients. We deploy targeted applications that can enhance the onboarding process for new clients and simplify their interactions with us.” With carefully placed technological investments, Clark explains how MUFG focuses on functionality and processing time to allow employees time for professional development and client relationships. “Building on the successes from a particular market or product rollout, we then pursue opportunities to leverage these investments and achieve greater scale across our organisation on behalf of our clients and our business.”

25. Financial institutions are innovating business models to confront and overcome challenges opened up by digital transformation. To move towards a safer, more secure financial future banks must upgrade their technological capabilities when it comes to data protection and privacy in order to prevent fraud and mitigate risk. In current financial developments in ESG technology, financial service providers are working on approaches that utilise online services and technology to adapt to the regulatory, cybersecurity, and geopolitical risks that are emerging in the current post-pandemic era. In this process, the financial industry is witnessing a surge in enhanced online products aimed at protecting consumers and facilitating online banking with minimal risk. 25 | THE FUTURE OF ESGTECH 2023 Progress is being made as banks are pioneering technological advancement to keep up with the fast pace of the industry. Looking forward, financial service providers must embrace new technologies and customer protection strategies to maintain an edge in the industry.

26. 07 CONCLUSION We are on the precipice of a sustainability-driven industrial revolution. New business models, innovative ways of working, and restructured supply chains will set the scene for a financial services landscape that does not merely pay lip service to ESG objectives, but drives forward a truly sustainable economy. 26 | THE FUTURE OF ESGTECH 2023 Technology is already playing a leading role in this evolution, however financial institutions are yet to capitalise fully on the opportunity and strengths that partnerships with fintechs can provide. Through such partnerships, financial institutions can enhance their technical capabilities to deliver on ESG requirements, in parallel with building out new value propositions that are unencumbered by costly and outdated legacy tech stacks. Addressing these ESG requirements is no longer just a matter of meeting regulatory and compliance standards, but about creating products that resonate with a digitally native and sustainability-focused customer base. Consumers no longer accept lacklustre excuses for mediocrity in customer experience, and this undoubtedly extends to banks’ delivery of their ESG objectives. Customers also recognise the imperative of robust data privacy and cyber security services provided by their financial institutions, and as financial services evolves more heavily into a digital industry, banks must ensure sufficient resource is allocated into building resilient systems. Working within an agile ecosystem that meets ESG requirements through efficient use of data is a strong springboard for achieving this resilience, and symbiotic partnerships with third parties will enable this market to thrive.

27. 08 ABOUT FINEXTRA RESEARCH 27 This report is published by Finextra Research. Finextra Research is the world’s leading specialist financial technology (fintech) news and information source. Finextra offers over 100,000 fintech news, features and TV content items to visitors of finextra.com. | THE FUTURE OF ESGTECH 2023 Founded in 1999, Finextra Research covers all aspects of financial technology innovation and operation involving banks, institutions and vendor organisations within the wholesale and retail banking, payments and cards sectors worldwide. Finextra’s unique global community consists of over 30,000 fintech professionals working inside banks and financial institutions, specialist fintech application and service providers, consulting organisations and mainstream technology providers. The Finextra community actively participate in posting their opinions and comments on the evolution of fintech. In addition, they contribute information and data to Finextra surveys and reports. For more information: Visit www.finextra.com, follow @finextra, email contact@finextra.com or call +44 (0)20 3100 3670

28. 09 ABOUT SWIFT SWIFT is a global member owned cooperative and the world’s leading provider of secure financial messaging services. We provide our community with a platform for messaging and standards for communicating, and we offer products and services to facilitate access and integration, identification, analysis and regulatory compliance. 28 | THE FUTURE OF ESGTECH 2023 Our messaging platform, products and services connect more than 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories. While SWIFT does not hold funds or manage accounts on behalf of customers, we enable our global community of users to communicate securely, exchanging standardised financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world. As their trusted provider, we relentlessly pursue operational excellence; we support our community in addressing cyber threats; and we continually seek ways to lower costs, reduce risks and eliminate operational inefficiencies. Our products and services support our community’s access and integration, business intelligence, reference data and financial crime compliance needs. SWIFT also brings the financial community together – at global, regional and local levels – to shape market practice, define standards and debate issues of mutual interest or concern. Headquartered in Belgium, SWIFT’s international governance and oversight reinforces the neutral, global character of its cooperative structure. SWIFT’s global office network ensures an active presence in all the major financial centres.

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