If you haven’t heard, green financing is on the rise! Look up the term on the internet and you will find multiple definitions, all of which, essentially, highlight the same thing: that it is a type of financing that is solely catered towards projects that advance environment, social, and governance (ESG) and other sustainability goals. In fact, a 2020 study by the International Monetary Fund notes green financing as a critical sector in “the fight against climate change by supporting reductions in climate change risk and mitigating the impact of adverse climate events.” But Barun Chandran, co-founder of GreenFi, a Singapore-headquartered artificial intelligence (AI)-enabled ESG due-diligence and risk management platform, notes that there is a glaring issue that persists in this space.
“Banks, financial institutions and corporates are raising the issuance of green financing and ESG-linked loans but struggle with complex unstructured ESG data, weak ESG indicators and unreliable rating systems which makes them susceptible to greenwashing,” Chandran says. “Most institutions rely on manual ESG data management, compliance reporting and assurance processes to make critical business decisions. Assets worth US$130 trillion that are managed by financial institutions are under climate change risk. The global sustainable financing market [as per US-based market research company Global Markets Insights] is valued at $5.4 trillion, growing at a compound annual growth rate (CAGR) of 22%. At the same time, ESG regulations are evolving for climate risks and risk management. This demands a critical need of automating ESG risk management at scale.”
