Data, Technology & Skills

Data, Technology and Skills

The Australian securitisation industry is full of data loving professionals who are comfortable manipulating swathes of complex data, yet many are cautious about their ability to deal with sustainability related data.

There are many practical reasons for caution. These include the need to begin collecting new types of data and understanding the technicalities of energy and emissions measurement. Many are concerned about the suitability of their systems to capture the data, the uncertainty about what data will be useful and meaningful as well as the task of backfilling data and missing data generally. Some believe that investment in technology will be necessary to manage and manipulate the new data required. Others feel the capture of additional data fields will do the trick.

There is also a sense of positive anticipation about the potential for artificial intelligence as systems and technology progress. Despite the analytical skills inherent in the industry there is a belief that new roles will emerge as a direct result of the shift to sophisticated ESG reporting.

Data

Participants are not just thinking about the collection of new forms of data in a passive way. There is a growing appreciation of the value of data. The term Big Data has been attributed to many people with earliest sightings of the phrase in the mid-to-late 1980s and more widespread use towards the end of the 20th century. It became a buzz word in the in the beginning of this century but somehow didn’t quite live up to its promise. There are several participants who feel that may be about to change.

“In that FinTech space, when you look at newer players in market - not to suggest that banks or larger institutions don't have great data - I think there's been a real shift in thinking around the value of data. I think that prompts data to be considered as an absolute requirement in terms of getting as much data as you can in connection with everything you do upfront.”

- Non Bank Issuer “You know, the industry is moving quite firmly towards capturing as many data points as possible, wanting to better understand the user, but also to better be able to manage the risks and optimise the funding.”

- Global Bank

Equally, there are valid concerns about how quickly the industry can respond to the data requirements sustainability will generate.

“If you think about how long it took to get loan level data post-GFC and the push across a number of securitisation markets to mirror what they saw in the US in terms of the loan level data availability it took many, many years, and for ESG, it's going to take just as long, if not longer.”

- Global Investor

There’s a degree of excitement about what might be possible in the future through a combination of technology and expertise.

Technology

Data and technology go hand-inhand. By adding a sprinkle of AI, more possibilities are opening up. In particular, several participants feel the data-technology-AI combination will prove highly beneficial in dealing with sustainability related data and facilitating ESG reporting.

“I think AI will help enable ESG reporting and analysis. A lot of people now are thinking about how that aspect of ESG can be delivered to investors. First of all, use blockchain to secure the data and then you use AI to analyse the data, and then deliver that data to the investors. Use the Internet of Things to collect the data. You take it, secure it and then you analyse and deliver it.”

- Service Provider

“Already in Hong Kong, they are looking at a 'green' bond, a retail bond, that will double the outcomes on a real time basis to investors using blockchain and AI, like smart contracts. For example, in areas like infrastructure, with having sensors on things, you can actually measure stuff and then, using smart contracts, you can ultimately deliver them through to investors?”

- Service Provider Many participants spoke of their own efforts in upgrading technology or seeing others doing so, as the data management and analysis needs of the industry continue to grow. Whether it’s for data capture and processing, analysis or enhancing the customer experience, there is a belief that existing systems are often not up to the task. In practical terms there are immediate needs to be satisfied.

“One, we are not collecting all the data. If you think of how many home loans we deal with in our portfolios, we're not collecting 'green' numbers. We don’t know how many of those mortgages have solar cells in the top of the house that are generating power and things like that. It's not collected now. Eventually that kind of data will be collected because, if the 'green' bonds are any example, a mortgage with a solar system should get a lower interest rate, so it's going to come through.”

- Global Investor There is also a belief that the need for accreditation of 'green' pools or tranches will require digitisation.

“For the 'green' tranches we’ve seen so far, I don’t think in the future you'll be able to say that, well look at this pool, it's a light 'green' pool. I just don't think that will wash soon, and that it's all got to be in the data. You'll be able to present it digitally. Otherwise, you're just not going to get the accreditation.”

- Non Bank Issuer

The use of technology for ESG reporting in the ways described is not the only opportunity to harness new technology capabilities in the sustainability space.

“There's currently a start-up company that’s effectively doing some of that energyrelated piece based on Big Data and they're able to say, when people are buying homes, ‘okay, this is what the shape of the home is and, therefore, I can tell you how much energy you'll save by choosing this window over this window.’ AI technology is able to say, what is the sustainability impact of that choice. How does the consumer understands it is absolutely a really big piece of that puzzle, and some really exciting stuff is being done on that.”

- Non Bank Issuer

Here is another example of how technology and data can improve measurement of sustainability of individual properties.

“There is technology that's sitting there that can tell you, for example, if your solar isn't operating as it should be, based on the sort of information I have around your neighbours. It looks like yours is either maybe in shade or, you know, something is covering it and things like that. So there's much more granular nature of what the assets are actually doing and, therefore, why they're sustainable. That's a key trend that must be a software solution.”

- Non Bank Issuer

Skills

All this talk of technology, AI and Big Data got us wondering about who is going to deal with it all and prompted us to ask participants whether they believe there will be new skill sets required in securitisation to do so.

The first response summed it very well. “To date, the people who have been at the forefront and who are in the responsible investment kind of jobs in different organizations are the tree huggers, right? They are going to get replaced by people with a scientific background. Think about who is best to calculate CO2 emissions and things like that – it’s either the right engineers, or chemists (people with a chemistry background or a physics background, things like that) - it's not the guys with the Liberal Arts degree who dominate what I would say is the responsible investment world today.”

- Global Investor

It didn’t take long before others joined the chorus.

“The best stuff I've seen (referring to technical analysis) is done by proper technicians and technical companies - true independent engineering companies - who are able to understand the science and understand Avogadro’s number and things like that.”

- Global Investor

That may get you, like me, wondering what Avogadro’s number is. Apparently, Avogadro's number is the number of elementary particles (molecules, atoms, compounds, etc.) per mole of a substance. I’m none the wiser but I am certainly impressed that a global investor lets it roll off the tongue. I use this example to highlight the natural caution existing securitisation participants have towards this frontier of sustainability measurement. There are probably many easier ways to describe the impact of an asset on sustainability, but it does seem new skills may be required.

“If you think about data as an asset, I think in all these newer businesses there is clearly a very, very big focus on intelligence platforms, IT resources, engineers in the data space - that is a booming area in terms of skills that are required. I think that is very much here to stay.”

- Non Bank Issuer

“We certainly encourage that sort of technology mind-set and one of our key strategic pillars is about data. Part of the task, for example, within our organisation, will be to have a champion of data whose job is to make sure that the culture moves towards that sort of data-led decision making. Their skills are about the cultural shift in thinking about data, the consumer-centric side of things, using data to understand how best to help the consumer.”

- Non Bank Issuer

The other option is to outsource those skills and perhaps that’s a trend we will see in the future.