Trade data and analytics provider Coriolis Technologies has today launched the first fully automated and standardised tool for measuring environmental, social and governance (ESG) factors and sustainability.
Automated ESG Ratings enables firms to monitor the ESG activity of companies and supply chains. It aggregates company information from several libraries of open source data and scores them against sustainability regulations.
These include the United Nations (UN) Sustainable Development Goals, the EU’s taxonomy, dual-use products, political risk, negative news and greenhouse gas emissions for scope 1, 2 and 3, which together cover carbon emissions generated by a company and its supply chain.
Speaking today (October 18) at the launch event, Coriolis chief executive Rebecca Harding said the ratings tool marked a “bold, slightly disruptive, and somewhat controversial step” that will enable the financial services industry to measure how they are faring against several regulatory frameworks and identify ways they can improve.
The genesis of the tool was the need for an automated, scalable and independent “ESG passport on every single transaction, every single company”, which “can go anywhere with the company and mean the same thing, in any jurisdiction, or any regulatory environment”, Harding said.
The tool currently covers more than 400 million companies globally, providing an automatically generated score out of 1,000, with a higher score indicating a better result.
The scores can be broken down into more granular detail according to specific regulatory systems, assessed via a traffic light scoring system. It also provides separate scores for each of the environment, social and governance aspects.
Companies can exercise a right to reply and self-report, which creates their own manual score, but Harding noted that it was important never to “recalibrate” the automated score as mitigating strategies will be borne out in the data.
“If you are properly implementing strategies to reduce carbon emissions, for example, then it will appear in the satellite data,” she stated.
The Ukraine crisis has made the ESG framework more “fluid”, Harding added, making “ESG measurement more important than ever”.
Harding also emphasised the need to keep costs low for small and medium-sized enterprises (SMEs), which “do not have budgets” for these kinds of tools. “The cost has to be born from somewhere, but it can’t be by the very small SMEs.” Costs are currently shared between different parties, including banks and suppliers.
Clients and partners can use the system to facilitate funding for sustainable projects and mitigate both the reputational and financial risks of unethical trade. It allows “institutions to provide financial incentives to their clients upon meeting specific ESG criteria”, furthering the transition to more sustainable, low carbon operations, Coriolis explains in a statement.
The tool is “anti-greenwash, universal, non-punitive, non-gameable and scalable”, the firm says.
GTR revealed Coriolis’ pilot of its ESG “passport” for goods trade in March. Over the past year, more than 40 banks, businesses and policymakers have worked with Coriolis in the development of the ratings tool through the Kosmos Working Group.
Several partners have made the tool available to their clients, including the Institute of Export and International Trade, Minehub, Surecomp and TradeSun.
Last week, Coriolis also announced its partnership with First Abu Dhabi Bank (FAB), which will allow the bank to build on the sustainable supply chain solutions it offers and “enable clients to gain visibility across their supply chain”.
The partnership is intended to support FAB’s commitment to facilitate US$75bn in funding for sustainable projects by 2030, Coriolis says.
“Through this strategic partnership with Coriolis Technologies, FAB will now be closer to meeting our sustainability targets and helping our valued clients in the UAE and other markets meet their sustainability objectives,” says Sanjay Sethi, head of global transaction banking at FAB.
FAB chief sustainability officer Shargiil Bashir adds that the partnership “fully illustrates the bank’s sustainability drive and one of its strongest strategic foundations – to support its clients’ transition to net zero through innovative finance solutions”.
The need for the trade finance industry to address its ESG impact was highlighted in June this year, when a report produced by Coriolis in partnership with MEP Saskia Bricmont and the Greens/European Free Alliance found that the majority of global trade contributes negatively to the UN’s Sustainable Development Goals.
Banks are increasingly bringing in incentives for companies with better ESG scores. HSBC and Walmart, for example, last year introduced science-based emissions reduction targets into their sustainable supply chain finance programme, offering cheaper financing to suppliers who meet sustainability goals.