The SAP is rising

The SAP is rising

Dirk Kruse, CEO of SAP Fioneer, explains how this ambitious joint venture is focussed on helping financial services tackle one of the most pressing problems of our time… the thorny issue of ESG data management

The launch of SAP Fioneer in 2021 was a milestone in the long and distinguished history of SAP, the multinational, cross-industry technology leader that for 50 years has been at the forefront of developing enterprise application software.

Conflating the words ‘finance’ and ‘pioneer’, it’s a joint venture between SAP and Dediq, an entrepreneurial investor that focusses on digital businesses and information technology, and the aim is to accelerate the transformation across core banking, insurance and other members of the financial services (FS) industry.

The new company, which can be seen as both an extension to and a refinement of SAP’s existing business, was launched during a time of rapid change for FS. Due to the pandemic there has been an acceleration in the adoption of digital-first strategies and an increase in the demand for Cloud and platform-based businesses.

The banking and insurance industries have also recognised the need to quickly adapt and modernise in order to remain relevant in the digital economy and meet the expectations of consumers.

“We’ve built the SAP financial services business over more than 20 years,” says Dirk Kruse, SAP Fioneer’s CEO. “However, the marketplace has been unsettled by rapid changes and the amount of investment and capacity to go into products and portfolios. At SAP, we saw the need for change and wondered how we should organise our business, so that we can be the best innovation and transformation partner for our clients.”

In 2021 that thought process led to the creation of SAP Fioneer. “We took all the products, all the IP, all the experts, and much capital, and we invested it in a joint venture,” says Kruse. “SAP Fioneer is a carve-out, or ‘speedboat’, to drive innovation with energy and purpose. It’s a well-considered response to an industry challenge.”

While SAP’s technology and pedigree were unquestioned, the founders of SAP Fioneer knew that it would require a different type of enterprise – a leaner and more specialist organisation – to deliver the creative solutions being demanded by a rapidly changing financial industry. So while it carries the SAP name and is backed by all the resources of SAP’s global brand, SAP Fioneer is a standalone business. Or, to use Kruse’s phrase, separate but integrated.

Underpinned by an ecosystem of handpicked, curated partners who help pull together collaborative solutions for financial services clients, it’s similar at first glance to pure-play FS providers Temenos’ and Finastra’s Cloud-based marketplaces.

But the big difference is that it draws on SAP’s experience in handholding clients in other sectors through digital transformation. Its USP comes from understanding how to transform enterprise business processes, not just the technology.

SAP Fioneer is a carve-out, or ‘speedboat’, to drive innovation with energy and purpose. It’s a well-considered response to an industry challenge

System integration is a key part of the proposition – to bring everything together neatly in one place – and Kruse stresses that engagement and a close partnership with customers are crucial so that solutions always answer demand – at scale and at speed.

An excellent example of it rising to a topical challenge faced by FS providers, is how it’s helping them make the transition to ‘sustainable finance’.

Every company today is under scrutiny to embrace good environment, social and governance (ESG) principles and to demonstrate the highest standards in their operations. But, as global temperatures rise, so does the regulatory and stakeholder pressure on larger financial services companies to demonstrate corporate responsibility.

“ESG is a growing concern for our banking and insurance clients,” confirms Kruse, “and it’s a key element in our platform. From our conversations with clients and partners, we know there is a big demand for regulatory reporting from an ESG point of view. Data feeds, data providers and different data sources are all big discussion topics. In addition, most of our clients are concerned about data management – although they are collecting all the information, they don’t know how to manage it and build a single source of truth for ESG.”

So, SAP Fioneer has devised a way to deliver it through Sustainable Finance Data Hub: an integrated data pool that connects and harmonises external data sourced through partners in an ESG data marketplace with a bank’s internal ESG data. This ‘reliable, regulation-compliant single source of ESG truth within the bank’, will, ultimately, give rise to the SAP Fioneer Sustainable Finance Platform, which FIs can use for internal auditing and external reporting of climate-related metrics, satisfying both stakeholder and regulator demands for transparency.

With a global ratcheting up of climate-related reporting requirements – and countries shamed at the recent COP27 climate summit to make good on previous pledges to do even more – getting to grips with the ‘E’ in ESG is inescapable for

Going green:

Missing or inconsistent data needs to be addressed

financial institutions. But, speaking at Sibos 2022 in October, Ravi Menon, managing director of the Monetary Authority of Singapore, singled out the gathering of robust and trusted ESG data as one of the top two challenges for the financial services industry as it enters 2023.

“Sustainable finance is a powerful enabler for the net zero transition. High-quality, trusted ESG data is critical for comparable climate-related disclosures, management of environmental risks, and green and transition finance flows,” he said.

However, while quality data is foundational in the fight against greenwashing and in enabling relevant stakeholders to make effective ESG investment decisions, there was a significant gap between ESG data needs and the ESG data available, Menon added.

“We need good data on firms’ carbon footprint, historical carbon emission trends, and compliance with their respective transition targets. We also need data on the climate-related risks their physical assets are vulnerable to. But the ESG data acquisition process is often manual, tedious and costly. ESG data verification is at a nascent stage. This impacts the credibility of reporting. Fintech can be a key enabler in addressing these ESG data challenges.”

Kruse would like to think that SAP Fioneer’s Sustainable Finance Data Hub fits that description. It enables banks to handle their end-to-end ESG challenges centrally across their business units. In addition, it includes a Sustainable Finance Workplace, which consolidates bank-integrated ESG applications, such as climate risk stress testing, ESG advisory, and emissions management and steering.

“The Sustainable Finance Data Hub is a platform solution we would like to offer to all our banking and insurance clients,” says Kruse. “To have this single source of ESG truth, and to be open to all the reporting providers, with SAP integration, is a versatile and powerful tool. We also want to be open, so that other reporting solutions can sit on top.”

What makes the hub unique, he says, is that it does more than simply connect to data feeds – it also informs decisions and opens conversations.

“It’s essential in financial services, especially the banking industry, to collect a diverse range of data, particularly in the credit and lending process,” he says. “In order to provide sustainable finance data on environmental, social and governance (EDG) issues, you will need to offer a user interface and integrate it into your loan origination process. This is because there will be no data provider that offers specific information on, for example, a wind park in the North Atlantic. “You have to capture that information yourself. So we’re building a user interface that allows you to incorporate your data and data feeds.” That external data is sourced through SAP’s ESG marketplace, and a clear audit trail is embedded in all banking processes. Notably, the solution also allows banks to collect client ESG data, which, according to a recent SAP Fioneer white paper The Challenge Of Sustainable Sustainability: Accelerating The ESG Transformation In Banking is ‘a pressing use case at the moment for banks’ because ‘data availability from public and proprietary sources alone is insufficient in coverage and reliability in order to fulfil a bank’s ESG requirements’.

Client data collection consists of an easy-to-navigate frontend, pre-filled with existing internal and external ESG client data. This minimises manual input and, in particular, the time a bank might need for a corporate customer to provide ESG data.

Any bank currently employed in the task of compiling a carbon dossier on its clients in line with risk exposure audits or net zero alignment pledges will tell you that it’s an all-consuming task. But SAP Fioneer’s solution goes further by using ESG-trigger points to create an ESG advisory dialogue, which will help banks and their customers to accelerate ESG business transformation together.

A data collection and advisory workbench analyses client data and will alert relationship managers to the potential advisory needs of corporate clients, enabling bank sales teams to identify opportunities for ESG support.

SAP Fioneer’s ESG project is an early example of how it understands the pressures and competing demands that financial services companies face today and can focus the skills and energy of itself and its partners in a highly targeted way to support them.

In addition, the team is building a strong ecosystem of co-developers that will allow it to undertake many similar projects, says Kruse. “We’re building an inclusive, open, future-fit platform for our customers, prospects and partners,” he adds.

“The future is about ecosystems and platforms as a service, and SAP Fioneer is showing the way forward.”