EMERGING SYNERGIES AND SPACE ADDED VALUE IN SUPPORT OF GREEN AND SUSTAINABLE FINANCE
Climate change and environmental monitoring had been at the heart of space related activities since decades and had been unique and indispensable in related research and insights. With European infrastructure such as Copernicus, a constant flow of images can help understanding climate related risks, but also changes in landscapes and environmental parameters. With the finance’s world attention to climate, new synergies are emerging. Policy changes and initiatives, from the Paris agreement to the Green Deal, stress the importance of the reallocation of financial flows with green and sustainable measurable impact. Likewise, climate-related risks on asset, portfolios or even sovereign debt level, are being included risk management and stress test approaches of in investors and central banks. Still, supervisors and investors are flying blind when it comes to reliable data: data completeness, quality, and consistency, notably because of issues of non-disclosure have emerged as key limiting factors in current climate-related assessments. Besides clear regulations for comparable, science-based and practical data approaches, technological challenges and data gaps exist as a barrier for industry-wide adaption. Space can fill some of these gaps, namely in the fields of ESG, nature-based solutions and climate related risks.
EMERGING NEEDS FOR ASSET LEVEL IMPACT MONITORING
Preconditions for understanding the real ESG impact of an asset and its respective environmental footprint are (i) the geolocation and identification of assets, (i) the monitoring of the environment and detection of related changes, as well as (iii) the closing of the respective attribution gap. Asset data and attributes (such as type, age, capacity, ownership and geospatial coordinates) are available commercially for only a few sectors, even less in open-source format. The lack of geospatial information in credit and investment deals, is a major obstacle for scalable tools and platform solutions. Indirect approaches, using Earth Observation images and AI are being successfully used in creating open and global data sets, characterising assets and linking those to ownership structures. In fact, the geolocation of assets on single asset, company or portfolio level is a precondition for the following merge with further data layers and added value analytics focusing on understanding environmental factors such as air pollution, biodiversity loss, deforestation or water stress, among others.
Publicly, greenhouse gas emissions and related air pollution is in the focus, but obligatory reporting of emissions is often limited to large-listed corporates leading to a shortage of systematic asset level emission data collection, monitoring and verification. Remote sensing can help securing better data at higher frequency and reduce dependency on voluntary disclosures as per annual self-disclosed sustainability reports. Integration with existing IoT/in-situ sensors and systems and related connectivity via satellites for data transmission can add value. For the time being, satellites have the biggest added value for high emission areas such as large cities (as shown by RACE GHG emission observatory during the pandemic), but with increasing spatial resolution, point source emission monitoring is gaining attention globally (e.g. large power stations, refineries or landfills).
NATURAL WEALTH, NATURE BASED SOLUTIONS AND FINANCE
It had been highlighted that the lack of integration of natural capital in public national wealth accounts fails to fully reflect national wealth, but also associated risks. New frameworks include the contributions of nature when measuring economic prosperity and human well-being, ensuring that natural capital, forests, wetlands and other ecosystems, are recognized in economic reporting. The regular assessment of natural wealth is not only relevant for national accounting, but also climate related project selection and financial instruments (e.g. climate funds), but also sovereign debt risks assessments. Geospatial information populates long-term data sets for tracking changes in ecosystems on country, but also regional and project level. ESA data is already been used to measure green growth in various projects.
Alongside limiting the negative impacts on nature, there is a growing interest from governments, businesses and financial institutions to protect and investment in nature-based solutions with positive impact including biodiversity and ecosystems in general. While investments are mainly driven by the public sector, private sector commitments are growing and include activities such as biodiversity offsets, sustainable supply chains, and private equity impact investment. Continued growth in carbon offsetting as well as carbon credits, can be further expected. Data from satellites, drones and low flying aircrafts can be triangulated to measure, report and verify emissions.
CLIMATE RELATED RISKS AND HAZARDS
The third pillar with growing synergies between the space and finance industry is covering climate related risks and hazards. Climate-related data enable financial institutions and investors to understand and mitigate risks and the resulting financial consequences. The accelerating path and intensity of climate-related risks have stimulated further work on physical risks assessment and institutions are starting to incorporate climate-related (gradual changes as well extreme weather events) risks into their risk management framework, looking beyond classical credit risks.
When it comes to understanding climate change, it must be stated that currently 54 Essential Climate Variables are specified, of which about 60 per cent can be addressed by satellite data. General historic data for several decades are available on ESA’s Climate Change Initiative open data portal and climate applications and services are also accessible on the Copernicus website. Looking at hazards and climate events, parallels can be drawn to the extensive work that had been carried out for insurance services and disaster risk management, especially looking at sea-level rise, floods, droughts, fire, landslide etc. Data provide historical reference of an area before and after an event, determining the extent and exact location.
THE GREEN FINANCE ECOSYSTEM AND THE ROLE OF ESA
The European Space Agency is since decades a major contributor to the understanding of climate change and related risks. European infrastructure from Copernicus to Galileo allow for constant connectivity, geolocation and a rich database of earth imagery and related scientific achievements. Building on long lasting relationships with Multilateral Development Banks, especially the World Bank and Asian Development Bank, as well as the insurance sector, ESA and its partners are further supporting the development of innovative solutions and application in the use of space technologies for the green finance sector (see, for example, EO Clinic for further information). Further cross-sector interaction, as illustrated during the Space for Finance Workshop organised by the ESA Downstream Gateway, as well as further capacity building, within the finance sector, but also within the space industry, is needed to create jointly address the climate transition.
Currently, the European Space Agency’s “Financial Services” Kick-Start offers support and funding to companies developing services exploiting how space technology can support financial services.