Opinions
October 5, 2021

It’s time to supercharge sustainable finance reporting with AI

The climate transition is the defining challenge of our generation. It will require historic transformation across all industries at a pace and scale not seen since the industrial revolution. While this urgency has slowly started to make its way up corporate agendas, critical barriers continue to block material progress and the OECD estimates that an additional USD 6.9 trillion a year is required to meet the Paris climate and development objectives through 2030. The world urgently needs new solutions to accelerate the path to net zero — time is running out.

Sustainable finance regulations are increasingly being leveraged as thought-leading, enterprising solutions for climate change

McKinsey Global Institute

EU policymakers have turned to ambitious sustainable finance regulations to be the driving force behind their climate transformation objectives. Outpacing even the post-2008 wave of financial regulation, we are entering a period where climate regulations are increasingly leading the charge for sustainable business. New reporting frameworks like the EU taxonomy, Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD) are being mobilized to steer private capital out of polluting economic activities and into those the EU deems environmentally friendly.

In doing so, a new green language is being created that will impact every business and financial institution, from large multinationals to small industrial businesses that make up the backbone of the European economy. With COP26 just around the corner, we can anticipate that this regulatory push will become even more ambitious, more complex, and more demanding.

The pace at which new sustainable finance regulations are emerging poses challenges for businesses, large and small

While driving the climate transformation through the financial industry has been a smart move by policymakers in Brussels, on the ground businesses and financial institutions are struggling. The pace at which new regulations are emerging poses challenges for businesses to adopt the right reporting processes in time — and most are ill-prepared for the incoming changes.

For example, many DAX-listed companies have indicated that the taxonomy alignment criteria are unclear, include many vague definitions that leave too much room for interpretation, and include insufficient guidance for how to assess these new standards to their CAPEX/OPEX/P&L data. Although the EU Commission clarified the disclosure details by publishing a separate delegated act on Article 8 of the regulation, many companies still fear high costs to meet taxonomy disclosure requirements. They are requesting more resources to understand how the regulation will develop and impact their businesses.

Meanwhile, the CSRD proposal, which aims to exponentially increase the scope, mandate and reach of sustainability reporting within the EU, is creating extra tension among European companies. From fiscal year 2023 onwards, 55,000+ companies (up from 11,000 under the Non-Financial Reporting Directive) will need to start to report on their sustainability metrics. Many SMEs who have historically never had to report on sustainability will suddenly be required to not only report but have those reports audited pursuant to the CSRD’s mandatory audit and assurance requirements.

S&P Global

Related to the reporting complexity challenges, there is also a serious (and growing) talent gap in the number of relevant sustainability experts, preventing companies from bringing on the right people to implement these new requirements. The largest companies are beginning to turn their attention — and, more importantly, wallets — to snatching up all the sustainability experts in an information economy that produces far too few.

Source 1, Source 2

Technological advances powered by artificial intelligence provide a key solution

Parallel to this sustainable finance wave, over the last 6 years we have seen the acceleration of another trend that is completely transforming the way we work, the products we build, and the impacts that can be made through corporate action: technological advances powered by big data and artificial intelligence. In 2020 alone, we saw vaccine development cycles reduced from decades to months via artificial intelligence. Fully autonomous robotaxis are driving in Phoenix and parts of China. AI networks are able to predict 3D protein shapes based on amino-acid sequences, a longstanding problem in biotech research.

Leveraging these technological advancements will become pivotal if we are to have a fighting chance of reaching climate transition requirements in time. Technology solutions can, for example, help businesses large and small automate their sustainability reporting requirements, allowing them to re-allocate their limited resources away from compliance toward new, more sustainable business models and climate innovation.

Companies that recognize this early and understand that climate innovation can create both economic and environmental prosperity will become the defining winners of the next decade.

At Briink, we are leveraging AI to automate sustainability reporting

At Briink, we are leveraging AI to accelerate the transition to a sustainable future. Our first product will intelligently assist companies with their EU taxonomy reporting requirements, enabling leaders to increase positive impact, minimize risks, and relieve the burden of regulatory responses. It will enable sustainability professionals to re-allocate scarce resources from reporting to bold transformation.

Beginning with the EU taxonomy, we are building centralized tooling and data infrastructures that can be used in a scaleable manner for future regulations and reporting requirements, including the SFRD, CSRD, and beyond.

The future of sustainability will be challenging, but holds tremendous promise. Regulation will forge the path, narrowly followed by shifts in financial decision making and real economy business models. New technology solutions will emerge that will push old business practices to the fringe and highlight new paradigms that promote sustained, durable prosperity. Greenwashing is over — proactive, data-driven approaches to sustainability will set the leaders apart from the rest.

We’re on the briink of great change. The time to act is now.

If you’re interested to learn more about Briink and our EU Taxonomy reporting solutions, get in touch.