Everledger’s Leanne Kemp and Refinitiv’s Julia Walker set out the urgent case for cross-border data flow, including to channel finance to sustainable investments.
On paper, data governance looks a bit restrictive. Like the traffic police on the information highway, perhaps? Given its importance for driving innovation across the world, an open-ended and unregulated approach to data sharing might sound more effective.
In reality, data governance is more of a traffic calming system, which aims to speed up and proliferate the circulation of information across international borders. Far from stifling progress, data governance helps to establish channels and processes that greatly stimulate the global response to critical challenges such as biodiversity and carbon management, as well as health data security and traceability. For example, since the outbreak of Covid-19, governments around the world have started to realise and admit that restrictions on cross-border data flows not only inhibit scientific and economic progress but actually cost lives.
The urgency for international data governance has grown in recent years for two seemingly conflicting reasons. Firstly, data has become indispensable for business in the digital age. Between 2018 and 2022, global mobile data traffic (about half of all internet data traffic) is expected to grow at a compound annual growth rate of 46 percent to 77.5 exabytes per month.
The technologies of the Fourth Industrial Revolution (4IR) – such as artificial intelligence, blockchain, the Internet of Things (IoT) and cloud computing – are wholly reliant on open access to data. For example, McKinsey has projected that data-driven AI has the potential to deliver additional global economic activity of around USD 13 trillion by 2030.
Meanwhile, the International Data Corporation estimates that the number of connected IoT devices will swell to 41.6 billion by 2025, generating 79.4 zettabytes (ZB) of data. By way of comparison, the entire global datasphere was just 33 ZBs in 2018.
Although the call for data has amplified, countries have become more resistant to cross border data sharing. Research by the OECD in 2018 found that an estimated 200-plus data regulations were being implemented worldwide. The overall level of restrictiveness has doubled over the past decade, according to the European Centre for International Political Economy’s Data Restrictiveness Index. This is partly a misperception that protectionism is better for developing local markets. However, the restrictions are also due to legitimate fears around enforcement, sovereignty, privacy and security of data.
The disruption of the Covid-19 pandemic has swelled the perception of supply chain vulnerability and over-reliance on the rest of the world for data, goods, services, and materials. Countries and firms are looking to become more self-sufficient. However, international trade will remain a critical driver of GDP and business growth. Creating effective policies on cross-border data flows must be a priority for all countries and regions that wish to thrive in the post COVID-19 era.
The World Economic Forum (WEF), alongside a global community of like-minded organisations, has launched a Roadmap for Cross-Border Data Flows, with the aim of “identifying best-practice policies that both promote innovation in data-intensive technologies and enable data collaboration at regional and international levels.”
The WEF sets out six steps to help governments develop robust domestic policies that retain a balance between the benefits and risks of data flows:
- Allow data to flow by default
- Establish a level of data protection
- Prioritise cybersecurity
- Hardwire accountability between nations
- Prioritise connectivity, technical interoperability, data portability and data provenance
- Future-proof the policy environment
The roadmap aims to help countries to streamline requirements to facilitate cross-border data flows and create mechanisms to reduce regulatory overload. Doing so will capitalise on economies of scale, particularly at a regional level, and allow governments to create a friendly policy environment for indigenous and international investment. Investment breeds opportunity, and those countries with a burgeoning technology sector can start to maximise these companies’ opportunities on a global scale, enabling them to develop cutting-edge technologies with global impact as well as experiencing potential knock-on economic and societal benefits.
Close the sustainability data gap
The WEF is not alone in taking a lead on international data governance. The Future of Sustainable Data Alliance – spearheaded by Refinitiv and the WEF – campaigns for data collaboration as a means of channeling more finance to sustainable investments. By helping capital markets to gain a better grasp of sustainability considerations, the alliance of firms such as Everledger, IIF, The University of Oxford, The Climate Bonds Initiative and many others, is working to reduce the current misspend on “inefficient and even environmentally or socially damaging projects and assets.”
The Alliance has three goals:
- To articulate the future data requirements investors and governments need to accurately integrate Environmental, Social and Governance (ESG) data into decision making processes.
- To highlight new technology and data sets that can support a smooth transition to sustainable development.
- To determine data needs and how to satisfy them for investors wanting to take greater account of SDG-related risks and impacts.
Refinitiv’s Global Head of Government & Industry Affairs, Sustainable Finance, Julia Walker recently warned against losing sight of sustainability amid the chaos of the pandemic. “Despite many governments and regulatory bodies developing policies focused on sustainable investment as part of their strategies to meet the UN’s Sustainable Development Goals (SDGs), no country is as yet on track to meet the Goals, and the Covid-19 crisis has moved us even more off track,” she said.
“Therefore, reliable and actionable ESG data is now a critical requirement for effective sustainable investment. Industry needs to identify gaps in existing data sets, plan for future data needs and pinpoint what it is that the investment community needs in order to make better and more impactful investment decisions at scale.”
Mainstreaming climate and environmental data into capital markets in decision-useful form requires standardisation. With greater support and collaboration for alignment and innovation, investors will have the guidance and tools needed to tailor their investments and fulfil their fiduciary duties through better quality and more widely available data on sustainability and performance; superior data analytics through the advent of artificial intelligence and machine learning; and more informed decisions relating to strategic resilience.
Transparency in action
The Data Alliance recognises the value of data transparency in global supply chains, especially for scope 3 emissions. Data provenance (i.e. capturing a secure record of the lifetime history of an object) can become a powerful factor, as it enables transparency throughout the value chain.
The diamond industry provides a telling example of how international data sharing can make a real difference on the ground, both environmentally and socially. Diamonds were traditionally exchanged along opaque supply chains, where data was commonly lost, manipulated, suppressed or destroyed. More recently, mining companies, manufacturers and retailers have taken steps to become more transparent about the provenance of their diamonds, in response to customer demand for green and conflict-free stones, as well as international regulatory efforts.
Blockchain has emerged as a secure technology for flowing data in an interoperable way, based on its ability to document the origin and complete historical record of any type of data in an immutable record. Every instance of data changing hands or going through any type of operation is traceable, unlike the traditional paper trails or even Web 2.0 technologies, which have proven to be vulnerable to malefactors.
Powered by blockchain, transparency becomes a two-way street. Information flows securely upstream, carrying insights about the origin and characteristics of the diamond or gemstone. Eventually, the customer at the head of the chain can make their purchase on the basis of increased knowledge and a more thorough understanding of the provenance and value of the piece. An example of this is the project carried out by Everledger for Chow Tai Fook (one of the world’s largest jewelry retailers) and GIA (the foremost gemological institute in the world, creators of the 4Cs standard for diamond classification), which increased consumer confidence on the jewelry they are purchasing.
Information can also be sent downstream to help all stakeholders make more informed decisions. The overall impact is increased transparency in a complex supply chain, which results in closer adherence to the aims of the UN SDGs, whether related to gender equality, decent work and economic growth, or responsible consumption and production.
In one scenario, any restriction to this data flow could result in a regression of mining and manufacturing standards, which would in turn impact communities, biodiversity and carbon management. At the head of the chain, retailers could face a commercial loss, if consumers lose trust in the provenance of a potential purchase.
Data is therefore a precious asset in its own right, with a financial, human and environmental value. The right governance can help ensure this value is shared for the benefit of all nations.
Julia Walker is Global Head of Government and Industry Affairs and Sustainable Finance at Refinitiv; Leanne Kemp is Founder & CEO of Everledger and Queensland Chief Entrepreneur.