About the Author:
Harsha Vardhan Madiraju is Associate Director at The Hague based World Geospatial Industry Council (WGIC), a global trade association of companies from the geospatial industry. He is a geospatial evangelist and through the global council currently working on the areas of climate change, digital cities and their contributions to the society and economy.
Capital markets are facing significant challenges, climate change being one among them. India is not an exception to this problem. The country is witnessing significant impacts from flash floods, forest fires, droughts and drying rivers, and an increase in averages temperatures. This scenario calls for a significant change in the way businesses operate, especially in manufacturing, logistics and supply chains in order to mitigate and manage risks posed by climate change.
Many companies globally have started taking corrective actions on aspects related to climate change. This change is gaining momentum with a push from the investors and regulators and leading to an increased uptake of environmental, social, and governance (ESG) frameworks. ESG analysis has also become an increasingly important part of the investment process. For investment professionals, a key motivation in the practice of considering environmental, social, and governance (ESG) issues as part of their financial analysis is to gain a fuller understanding of the companies in which they invest.[i]
According to CDP (formerly the Carbon Disclosure Project), an organization that helps companies and cities disclose their environmental impact, standardized, transparent, and mandatory disclosures with necessary assurances provide essential information for better assessment of climate risks, both physical and transition, and its material impact on businesses, economies, investments, and assets.[ii]
ESG has also become a serious consideration for investment managers, as the titans of investment management claim that more than a third of their assets, or $35trn in total, are monitored through ESG lens.[iii]
In India, the Securities and Exchange Board of India (SEBI), under the new Business Responsibility and Sustainability Report (BRSR) disclosure norms, mandates climate disclosure for the top 1,000 listed companies beginning in the financial year 2022/23.[iv]
Robust data – Key to the E of ESG
From a climate perspective, monitoring and reporting on the environment aspect of ESG is becoming important. The Environment aspect is an all-encompassing term, including biodiversity and water scarcity. By far the most significant danger is from emissions, particularly those generated by carbon-belching industries. An ongoing challenge for ESG efforts is access to robust data. In response, commercial data providers are continually developing solutions to improve insight. A report published by the World Wide Fund for Nature (WWF), the World Bank Group and Global Canopy discusses one of these potential improvements: the use of geospatial technologies and data to monitor the environmental (E) aspect of ESG. According to a joint report from Climate TRACE, the Group on Earth Observations (GEO) and, the World Geospatial Industry Council (WGIC) – data, and knowledge around global greenhouse gas (GHG) emissions, trends and sources are becoming key levers to support national and international climate policymaking. [v]
What are geospatial technologies?
Geospatial technologies are a set of digital technologies that are aiding governments, enterprises, and international organizations in managing a range of societal, environmental, and economic activities. Organizations use geospatial technologies in sectors driving economy – e.g., land and city management and taxation, agriculture, energy, mining, transportation, shipping, aviation, logistics. Geospatial technologies are also used for managing natural resources – e.g., forests, biodiversity, freshwater bodies, and oceans. Ongoing global issues such as climate change, impending disasters can also be effectively managed using the geospatial data from earth observation, geographic information system (GIS), GNSS and LiDAR technologies.
Use of geospatial tech by the financial sector
For decades, the financial sector has incorporated geospatial data to better understand opportunities and risks, whether non-material or financially relevant. The insurance industry, for example, has long used complex geospatial models for catastrophe management, such as determining the risk of extreme weather to real estate, and are now arguably at the leading edge of modelling how extreme weather events are likely to change under different climate scenarios. In recent years, there has been an uptick in interest around the application of geospatial data to support Environmental (E), Social (S), and Corporate Governance (G) (ESG) insights.
Geospatial ESG [vi]
‘Geospatial ESG’, is defined as the use of geospatial data to generate ESG relevant insights into a specific commercial asset, company, portfolio, or geographic area. Geospatial ESG begins with the accurate location and definition of ownership of a commercial asset (e.g., factory, mine, field, retail estate), known as ‘asset data’. Then using different geospatial data approaches, it is possible to assess the asset against ‘observational data’, to provide insights into initial and ongoing environmental impact and other social and governance variables. The advantage of Geospatial ESG is clear: an additional data source capable of providing independent, high frequency insights into the environmental impact and risks of single assets or companies (by grouping the assets of a company and its supply chain), or within a given area such as a state or country.
This rising interest to determine environmental risk and financial materiality, coincides with advances in remote sensing technology and machine learning, spurring an array of start-ups offering niche or more general data services, such as marine oil spill detection, wildfire prediction, methane emission detection, carbon emission prediction from the heat profile of factories or exposure to deforestation within supply chains.
Recognizing the increasing attention and opportunities, the larger business intelligence providers have begun integrating various ‘environmental’ geospatial data points into their ESG products. Alongside this mainstreaming, some financial institutions have begun to expand their technical capacities to make use of geospatial data inhouse, often with an initial focus on climate change. This article discusses some examples from the commercial sector on how data and insights can help the sustainability and ESG practices.
Measuring ESG from Space
Satellites are important sources of intelligence, acting as eyes from the skies. An increasing number of private satellite missions with increased coverage times, resolutions and data types are making a great impact on measuring the environmental impacts by businesses. From this perspective, we present two examples – one to monitor emissions and one to monitor biodegradation.
Monitoring Methane emissions using satellites
At COP 26 in Glasgow, national governments and businesses made huge commitments to cut down emissions. According to a joint report from Climate TRACE, the Group on Earth Observations (GEO) and, the World Geospatial Industry Council (WGIC) – data, and knowledge around global greenhouse gas (GHG) emissions, trends and sources are becoming key levers to support national and international climate policymaking. Earth observation satellites, now have the capabilities to monitor GHG emissions.
GHGSat is a new space private sector company providing satellite data that is being used to gain insight about industrial CH4 emissions. The insights can be integrated into industrial operations and government policy/regulations. In the following two examples provided by GHGSat, we see GHG emissions from and Oil&Gas facility in Assam and from the landfill in Ghazipur, Delhi.
According to Stephane Germain, CEO, GHGSat, “Our customers and partners use our facility-level methane emissions data from space to make better decisions on a daily basis. Actionable intelligence on emissions worldwide is becoming key. We routinely detect and quantify methane emissions from onshore facilities across multiple industrial sectors, and increasingly from offshore oil and gas sites as well. GHGSat is the proven global leader enabling companies and governments to take action on reducing their emissions.”
Tracking CO2 Emissions using Satellite Data & AI
WGIC Partner organization Climate TRACE harnesses satellite imagery and other forms of remote sensing, artificial intelligence, and collective data science expertise to track human caused GHG emissions as they happen. Climate TRACE’s emissions inventory is the world’s first comprehensive accounting of GHG emissions based primarily on direct, independent observation.
Protecting Environmentally sensitive areas from encroachments
In another example, the Government of Odisha in Bhubaneswar is using earth observation data from Planet, leading provider of daily data and insights about Earth. Combined with artificial intelligence (AI), this satellite data helps provide decision-makers with insights that can aid in the protection of environmentally sensitive areas, such as wetlands, water bodies, forests, pipelines, floodplains, and more. These areas are vital to the long-term preservation of biological diversity and other natural resources across the region. Businesses can now take advantage of such technology to mitigate substantial environmental, legal, and material risks by more clearly seeing areas where avoiding building new facilities is restricted.
Monitoring Sustainability practices and progress on ESG using GIS
Geographic Information System (GIS) enabled analytics are aiding many global companies to work on their sustainability strategies and ESG reporting. According to Agendra Kumar, MD, Esri India, “Sustainability and ESG have become key priorities for organizations worldwide. A GIS-based framework helps in gaining a deeper understanding of risks from climate change-related events and the impact of business operations on the environment and society. This geospatial knowledge provides a base to devise strategies to mitigate these risks and improve governance. GIS also provides the much-needed actionable insights for organizations to devise ESG strategies and report their impact.”
Here are some examples detailing how some leading companies are using spatial analytics.
AT&T uses GIS to predict the impact of climate change on network areas. It helps in identifying the areas which are most at risk from climate change, all the way out to 2050. They have assessed risk from floods and high-intensity winds—the two threats that are deemed most significant to their infrastructure. With geospatial knowledge, a planning team can carry out more effective cell tower planning.
IKEA’s investment arm uses location intelligence to guide ecologically sound methods of timberland management. The company relies on GIS to monitor biodiversity measures like the health and population levels of animal, plant, and insect species in its operational regions. This holistic understanding of woodlands and the ecosystems they maintain is integral to maintaining long-lived, productive forests.
Munich Re is integrating geospatial capabilities in its underwriting practices; bases its risk pricing, as well as greater transparency into how risk-related decisions are made throughout client supply chains. They also use satellite imagery to better monitor storms and evaluate other extreme-weather events.
Nespresso uses smart maps to provide consumers with a view of where and how coffee crops are grown. Using GIS technology to blend maps and storytelling, the company incorporates data and human interest into its presentations, much as another organization might tell the story of carbon offset projects around the world.
Reliance General Insurance (RGI) in India uses geospatial technologies and spatial analysis as part of its sustainability risk assessment initiatives. Using these insights, they provide crop insurance schemes protecting farmers against financial losses due to unforeseen crop losses and climatic risks.
Road ahead for Geospatial ESG
According to the WWF and World Bank Group report on Geospatial ESG, Geospatial ESG is emerging into the mainstream. Geospatial approaches can aid in defining the environmental impacts of commercial activity. Compared to direct measurement and modelling approaches that often rely on annually disclosed data, geospatial metrics can potentially be generated at a very high granularity and temporal frequency, assuming robust asset data is continuously available. This allows potentially highly accurate independent daily, weekly, and monthly metrics. Improved environmentally relevant geospatial data at a high resolution and good temporal coverage is a key need and is potentially a win as it provides more robust data which could be integrated into ESG reporting. Further geospatial ESG practices remain at a nascent stage in India, and with the emerging regulations, it is time for the listed companies to embrace geospatial data and tools as part of the process they follow towards following BRSR mandates aimed at climate disclosure.
[i] ESG Investing and Analysis, CFA Institute
[ii] Disclosure: Imperative for a Sustainable India, CDP India Disclosure Report 2021
[iii] ESG should be boiled down to one simple measure: emissions, The Economist
[iv] Securities and Exchange Board of India (SEBI), Circular on “Business Responsibility and Sustainability Reporting by listed entities”, May 10, 2021, Circular No.: SEBI/HO/CFD/CMD-2/P/CIR/2021/562
[v] GHG Monitoring from Space Report – Climate TRACE, Group on Earth Observations (GEO) and World Geospatial Industry Council (WGIC)
[vi] Geospatial ESG – The Emerging Application of Geospatial Data for Gaining ‘Environmental’ Insights on the Asset, Corporate and Sovereign Level – WWF, the World Bank Group and Global Canopy
Bombay Brokers Forum Magazine has published the article in the November 2022 issue. The archive of the magazine is available at https://brokersforumofindia.com/magazines.php