Accelerate ESG Investing Using the TCS ESG Integration Solution on AWS
By Subramanian (Subi) Kuppuswami, Global Head – TCS Sustainable Banking & Investments
By M Indira (Indu) Priyadarsini, Global Solutions and Delivery Lead – TCS Sustainable Banking & Investments
By Manish Bhobe, BFSI Business Consultant, and Mihir Patel, Enterprise Architect – TCS AWSBU
By Karthik Thirugnanasambandam, Sr. PSA, and Phil Chadney, Financial Services Research Analyst – AWS
There is a growing trend amongst investment managers to access and evaluate non-financial performance data relating to companies within their investment universe. This helps them identify financial risk, monitor performance, and create differentiated investment propositions.
The trend is reflected in the growth of investment managers committing to incorporate environmental, social, and governance (ESG) issues into their investment analysis, with investor signatories of the UN Principles for Responsible Investment (PRI) growing to over 4,700 (up from c.2,500 in 2019).
Non-financial factors relating to ESG criteria, such as greenhouse gas emissions, can uncover potential risks and opportunities that are not typically reflected in traditional financial analysis.
Retail and institutional investors are increasingly seeking to align their values with their investment choices, something that has been accelerated by recent global events such as the pandemic and adverse climate conditions. This has heightened investor awareness towards environmental and social issues.
At the same time, regulators are taking steps to drive investment towards sustainable economic activities, whilst setting rules to enhance transparency of sustainable investment products.
This increasing recognition of ESG factors within the investment process has created pressure on investment managers to adopts a robust ESG data strategy and framework.
Tata Consultancy Services (TCS) has collaborated with Amazon Web Services (AWS) to offer the TCS ESG Integration Solution on AWS, which includes a cloud-native ESG data ingestion platform and custom ESG scoring model.
The TCS ESG Integration Solution enables investment managers to procure ESG data quickly and easily from multiple sources—including ESG data providers on the AWS Data Exchange—and then integrate and standardize these datasets using AWS services, before automatically aligning the data to industry performance indicators using the TCS ESG Integration Solution.
This post provides an overview of the TCS ESG Integration Solution and touches upon the industry challenges the solution addresses, high-level architecture, and potential business benefits for asset and investment managers.
TCS is an AWS Premier Tier Services Partner and Managed Cloud Services Provider (MSP) with the AWS Financial Services Competency. An IT services, consulting, and business solutions organization, TCS has been partnering with many of the world’s largest businesses in their transformation journeys for the last 50 years.
Today, with the lack of transparency and abundant availability of ESG data, asset managers struggle to effectively integrate ESG data into valuation and risk models and investment decisions.
According to a survey by BNP Paribas, 66% of asset managers reported data as a barrier to ESG integration. This is because there is a multiplicity of non-standardized and siloed data from third-party ESG data to corporate disclosure (or raw) ESG data.
When using third-party data, asset managers lack visibility on the ESG factors that impact their investments, since data providers use their own proprietary methods of data imputation and benchmarking to determine the impact of ESG criteria on performance and risk.
When using ESG data, asset managers face a costly and resource-intensive process—sourcing, standardizing, and weighting the data requires a team of data analysts who can take months to manipulate up to 900 data points into a single repository for analysis.
This has led financial institutions to seek a greater level of data granularity and flexibility in helping them to more effectively align their portfolios with ESG criteria.
There is increased demand for quantifiable and comparable metrics to identify how sustainable a business is operating, and what makes a company green or ESG-friendly. Financial institutions are looking for technology-enabled solutions that can help in traceability and governance of underlying data, thereby enabling them to take robust and informed ESG investment decisions.
TCS Solution Overview
The TCS ESG Integration Solution has two main components:
- Indicator workbench that provided flexibility and configurability for asset and investment managers to define ESG indicators (KPIs), set scientifically approved targets, and track performance of KPIs for entities such as assets, companies, and funds.
- ESG data pipeline to acquire, process, qualify, homogenize, and govern ESG data from various data sources and provide qualified data for building in-house ESG scoring.
The solution enables investment managers to manage ESG performance of the assets. The solution is framework-agnostic and comes with a pre-built library of 300+ indicators complying with various frameworks, such as Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Integrated Reporting (IR), EU Taxonomy, and Sustainable Finance Disclosure Regulations (SFDR).
The solution is also configurable with materiality embedded, allowing asset managers and investment managers to meet the unique investment mandates of their clients, and the evolving reporting requirements of the regulators.
Figure 1 – Add new indicators and create new indicator stack, define criticality, weightages, and targets.
The solution provides a sector, industry, and regional view of ESG performance.
Figure 2 – Performance view at sector level.
You can drill down to see individual company performance within a sector, and then to granular indicator level. This feature allows you to review your portfolio’s ESG performance at various levels and sub-levels.
Figure 3 – Drill down into company ESG performance.
Investment managers also benefit from the depth and breadth of AWS analytics, artificial intelligence (AI), and machine learning (ML) services, which can be applied to the data to identify new investment insights.
The solution can pick up the sustainability information from public disclosures of the companies. ESG data from third-party providers can be integrated into the solution through AWS Data Exchange.
Asset managers get a holistic and integrated 360-degree view of the ESG performance of the companies.
Figure 4- Holistic view of ESG performance, harmonizing scores and information from multiple data sources.
The solution can also report the real-world impact of the investments in terms of UN SDGs.
Figure 5 – Measures real-world impact of assets and investments on UN SDG.
The TCS ESG Integration Solution can be leveraged for tracking the performance of funds, which is calculated from the underlying company securities and investment share. ESG performance of the funds can also be compared and benchmarked against other funds.
Figure 6 – Track fund performance on ESG parameters.
TCS ESG Integration Solution Architecture
The TCS ESG Integration Solution uses AWS managed services in a microservices-based architecture for scalability and performance. This enables the architecture to be flexible to meet increasing demand with no additional infrastructure management.
Figure 7 – Reference architecture on AWS.
The following are key components of the AWS architecture:
- AWS Fargate: The containerized dynamic web application that supports this portal and other services are deployed in AWS Fargate. Since it’s a serverless compute engine, it helps remove the operational overhead of scaling, patching, securing, and managing servers.
- AWS Lambda: Serverless compute is again used in the form of AWS Lambda to process objects identified by the AI/ML models and to integrate with enterprise systems, AWS Data Exchange, and third-party data sources and providers.
- Amazon API Gateway: Provides the web and mobile application access to the REST services like location, third-party services, and other application services.
- Amazon Aurora PostgreSQL: This is a serverless, fully-managed database used for storing all event metadata identified from the various streams, as well as data generated from third-party data sources and or AWS Data Exchange services.
- AWS Data Exchange: Makes it easy to find, subscribe to, and use third-party data in the cloud. Once subscribed to a data product, you can use the AWS Data Exchange API to load data directly into Amazon Simple Storage Service (Amazon S3) and then analyze it with a wide variety of AWS analytics and machine learning services.
- Amazon ECR: Makes it easy for developers to store, manage, and deploy Docker container images. Amazon ECR is integrated with Amazon Elastic Container Service (Amazon ECS), to simplify development to production workflow.
- Amazon CloudWatch: This is a monitoring and management service that provides data and actionable insights for AWS, hybrid, and on-premises applications and infrastructure resources.
- Framework-agnostic solution enables alignment of investments with any number of industries’ ESG performance templates and frameworks.
- Well-researched library of 300+ indicators, aligned with frameworks including GRI, SASB, IR, SFDR, and EU Taxonomy, which enables quick setup of indicators for specific companies.
- Provides a transparent and holistic view of ESG performance of global businesses at company and portfolio level; helps identify strong ESG performers at sector, industry, region, and company level.
- Configurable solution with materiality embedded, scientifically approved ESG targets can be set and performance measured against identified KPIs.
- Solution leverages native AI/ML and cognitive capabilities to uncover new investment insights, allowing users to create a portfolio of strong ESG performers.
- The solution can be integrated with AWS Marketplace Discovery API, which enables asset managers to explore and choose relevant ESG data products from third-party providers.
- AWS cloud-native components like AWS Data Exchange Subscriber Coordinator help asset managers have the latest versions of the ESG datasets and manage the downstream processing better.
To learn how TCS can enable financial institutions to acquire a transparent view of ESG data enabled through sustainability frameworks, check out the solution brief and then read the Celent report on how the TCS solution is helping asset managers simplify ESG portfolio construction.
You can also read this TCS blog post on how technology can play a pivotal role in bringing sustainable financing to the banking sector.
With a cloud-native environmental, social, and governance (ESG) data platform powered by AWS services, asset managers and investment managers can establish robust data governance practices around their ESG data.
This enables them to meet today’s varied client and regulatory reporting requirements and have the flexibility to adapt to future changes. It also gives them the ability to use data to create differentiated investment products, services, and customer experiences by building custom ESG scoring models.
TCS has a proven track record in the financial services industry and strong collaboration with AWS to bring well-architected business solutions to market. Please contact the TCS team to learn more about their financial services industry consulting experience and this ESG offerings.
TCS – AWS Partner Spotlight
Tata Consultancy Services (TCS) is an AWS Premier Tier Consulting Partner and MSP. An IT services, consulting, and business solutions organization, TCS has been partnering with many of the world’s largest businesses in their transformation journeys for the last 50 years.
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