DLT to boost efficiency for Financial Intermediaries. An application in ESG reporting activities

Abstract

ABSTRACT There are relevant pushes from Authorities and Supervisors on Financial Intermediaries’ disclosure of Environmental, Social, and Governance (ESG) reporting (mandatory from 2022). However, currently, there is no standardised reporting framework to ensure the information is readable, scalable and comparable, likely due to the novelty of these reporting requirements. The reporting practices used to date have made the ESG reporting process glaringly obvious, uneven, inconsistent, and difficult to compare data disclosures due to the variety of ESG rating models in the market, and the different interpretive approaches used by businesses. An impetus to overcome these critical issues is Distributed Ledger Technologies (DLTs). DLTs can process and package ESG reports streamlined by creating agile, transparent, and automated data collection processes. This paper aims to show how the challenges of mandatory ESG reporting can be solved by leveraging DLTs. We use a pilot use case that applies DLTs to ESG reporting for Asset Management Firms to demonstrate the applicability, benefits, and challenges of using this technology. We highlight the challenges faced by the financial industry when applying DLT and guide future research, since, to our knowledge, no studies are investigating the interlinkages between DLT and mandatory ESG reporting.