Sustainable Finance Live Workshop Overview
Finextra Research and Responsible Risk recently held the Sustainable Finance Live workshop, continuing a series aimed at developing actionable ESG technology strategies and fostering partnerships to actualize these strategies.
The session focused on how alternative data sources, including satellites and sensors, enhance traditional risk management systems. This real-time, forward-looking data provides critical insights into sustainable financing possibilities.
Leveraging Satellite Data for Agricultural Risk Management
Rishikesh Sapre, co-founder of Mantle Labs, initiated the discussion by explaining how Axis Bank uses alternative data to guide credit risk decisions in agricultural lending. Axis Bank employs Mantle Labs’ Geobotanics platform, designed to establish a risk framework that encourages investment in smallholder farms across Asia and Sub-Saharan Africa.
With 500 million smallholder farms producing 80% of food for approximately two billion people, access to financial credit remains a challenge due to the lack of visibility into their viability, often resulting in dependence on government subsidies. Sapre asserts that the platform facilitates the development of affordable financing products for farmers, ensuring their business models are attractive to financial institutions and offering a global solution without the necessity of calibration.
Geobotanics has utilized satellite data over the past decade to evaluate agricultural performance across different regions, calculating the likelihood of crop failure stemming from factors like drought, adverse weather, or pests. The platform processes satellite imagery every ten days, allowing banks to identify high-risk areas based on specific thresholds. This data directly correlates the probability of crop failure with loan default risks, empowering banks to allocate risk capital effectively and giving them a comprehensive framework for managing agricultural portfolios.
Sapre emphasizes that Geobotanics “builds business layers” by integrating relevant data into traditional financial models, promoting financial inclusion and enabling profitable farm credit without excessive reliance on government support.
Addressing the Gaps in Forward-Looking Data
Following Sapre, Maya Hennerkes, ESG sector lead at EBRD, explored the challenges and opportunities in utilizing alternative data for informing credit decisions and the necessity of quantifying these decisions against physical and transition risks. Hennerkes highlighted the significant gap between current financing achievements and the targets set by the Paris Agreement and the EU’s Green Deal.
She noted that the climate financing target of $100 billion annually by 2020 remains unmet, with actual contributions reaching only $70 billion in 2019. As funding struggles continue, Hennerkes pointed out that traditional risk assessment methods fail to adapt to new technologies that lack historical data, creating barriers to ‘bankability,’ which defines a project’s viability for investment.
To overcome these challenges, the EBRD is increasingly incorporating non-financial risks to integrate future-oriented data into its risk modeling, a necessary step for accurately evaluating climate risks and their potential impacts on projects.
Spatial Finance as a Solution for Financial Institutions
David Patterson, head of conservation intelligence at WWF, presented findings from a recent joint report with the World Bank that illustrates how the financial sector can leverage spatial finance. This emerging approach complements existing ESG data and provides a robust framework for assessing environmental impacts.
Patterson discussed how satellite and sensor data can yield unprecedented insights into investment, risk, and governance, while emphasizing the importance of developing a unified taxonomy in this space. He defined spatial finance as a geospatial technique for mapping company assets and comparing them against observable environmental data.
He proposed a five-tier taxonomy for spatial finance, outlining how asset data can be utilized at different levels—from assessing individual assets to aggregating data at portfolio and country levels. The key to effective implementation lies in enhancing data quality and understanding ownership structures.
Patterson concluded that most challenges in spatial finance are data-related rather than technological, underscoring the need for improved climate and environmental data.
Invitation to Engage Further
Finextra and Responsible Risk encourage readers to join the ongoing discussion, draw insights from these sessions, and collaborate on innovative solutions. For those interested in continuing this dialogue, registration for the Co-Creation workshops on December 8-9 is now open. Register here.