More data needed for sustainable financing— experts

Banks are struggling to get the right data at the right place.

Bankers and tech experts tout data as a key part of the sustainable financing journey— the problem is how to capture and process it.

Data is necessary for banks to make the decision on whether to onboard a client on a sustainable loan as well as to track their performance in comparison to their green loan commitments, said Ling Kay Yeow, partner, Ernst & Young Consulting, during a panel discussion at the 2024 edition of the ABF-IA Forum in Kuala Lumpur, Malaysia.

Ling— who served as the moderator of the panel— noted that one of the main challenges is getting the data at the right place at the right time and overcoming the current internal structures, which may result with different teams arriving at different conclusions.

One solution to this is by automating the document processing, which in turn will allow for quicker decisions, said Randy Dhana, Account Executive, Intelligent Automation and AI Specialist, Tungsten Automation

“There are two ways of looking at a green initiative. We could be looking at getting rid of paper from the working firm, which we consider as green as well, or they would be using green energy sources to power their plan,” Dhana told attendees of the forum.

“So, we help them by ingesting these documents, giving them quick forward analysis. It's a quicker turnaround time and happier customers and then greener for our clients,” Dhana added.

Apart from time, applying the right ESG risk assessment is also important, said Thor Boon Lee, Country Chief Risk Officer for OCBC Bank (Malaysia).

Thor noted the challenge of obtaining the right data to make the necessary risk assessments.

The good news is that taxonomies and classifications now exist to guide banks and companies in their risk assessments, he added.

Thor also called for banks to not just look at corporate customers, but also for smaller players such as small and medium enterprises (SMEs). SMEs also require support as they do not have the same large profits, as well as the same sustainability level as bigger corporations.

“If you ask me, that’s another journey for this segment that we can consider moving forward, to ensure the completion of a whole ecosystem,” Thor said.

For retail customers, the process starts with financial inclusion, according to Nirav Solanki, Region Head - Sales, APAC, EbixCash Financial Technology.

In India, for example, government initiatives for more financial inclusion have also helped in getting the data at the right place thanks to would-be customers likely having a bank account.

Banks have also rolled out targeted services, such as microfinancing for organic farming.

“Organic farming is being given a big push [right now], and that is where microfinance loans are coming into the picture,” Solanki said.

Beyond setting benchmarks and capturing data, a bigger challenge for banks is to balance sustainable financing opportunities with commercial opportunities.

OCBC’s Thor said that banks should not just regard sustainable financing as a “challenge” from a profit perspective, but rather see it as a new frontier of business opportunities.

“That notion of looking at it as riskier, we have to look at it more objectively. Instead of just one approach of saying that it creates higher risk,” Thor said.