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The U.S., unlike other robust nations, is only now beginning to organize the jigsaw-like pieces needed to structure and standardize sustainability reporting requirements, which will be needed to meet newly proposed U.S. Securities and Exchange Commission (SEC) rules.
“When I think about this topic, I’m reminded of walking down the aisle of a grocery store and seeing a product like fat-free milk,” Gary Gensler, SEC chair, said in a statement, “What does ‘fat-free’ mean? Well, in that case, you can see objective figures, like grams of fat, which are detailed on the nutrition label … When it comes to ESG investing, though, there’s currently a huge range of what asset managers might disclose or mean by their claims.”
In March, the SEC detailed proposed rules that would require companies — both foreign and domestic that are registered with the SEC — to report climate impact and emissions information. The proposal was enhanced late last month with amendments “to promote consistent, comparable and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social and governance (ESG) factors.”
These specific reporting requirements have, until now, been largely optional in the U.S., but pressure is mounting for companies and investors to understand, communicate and act on sustainability data.
But some companies aren’t waiting for an official policy to sort out the specifics. ESG Book, a company founded in 2018, built a cloud-based platform backed by AI-powered analysis that provides its customer base of financial institutions — like Bridgewater, J.P. Morgan, Citi and Robinhood — with sustainability and ESG data of more than 25,000 public companies.
“I think we all recognize that there are a number of big pressures around us that the world has to respond to — climate change probably being the most urgent … and financial markets are normally one of the most powerful ways to address and mobilize change,” Daniel Klier, CEO of ESG Book told VentureBeat. “That’s why business as usual is no longer an option.”
When business can’t be ‘as usual,’ change it
ESG Book is fresh off a newly announced $35 million series B round led by Energy Impact Partners along with Meridiam and Allianz X.
With the funding, the company aims to scale its platform while ensuring that its technology continues to offer its financial institution customers ESG data that is, “accessible, consistent and transparent, enabling financial markets to allocate capital towards more sustainable and higher impact assets,” according to the company’s press release.
Though there are several tools on the market for enterprises to measure their sustainability performance, ESG Books hopes to bridge the gap between the ESG data companies are collecting and placing in various places like press releases, online, annual reports, etc., to share it in an accessible way for investors to equip them with what has historically been disjointed and hard to compile.
“You see the SEC and Federal Reserve integrating climate risk into their practices, but at that moment, do you really see fundamental shifts in how investment patterns work?” Klier asked. “We think a lot of other companies are helping individual firms in their carbon calculation, but then the communications with stakeholders — one being the financial services market — at the moment, is not working. That’s the problem we’re trying to fix.”
What’s under the hood to bridge the gap
ESG Book’s platform gathers 450 data points on companies that they either report on themselves while using AI to analyze 30,000 news sources for what the world is reporting about that company.
ESG Book performs analysis in two ways. A fund manager or investor can have the data fed into their own systems through an API or they upload entire investment portfolios via a .csv file to ESG Book’s platform and the ESG Book will perform all the analytics on its platform.
“We collect the data with a combination of human analysts and artificial intelligence,” Klier said. “Then we invite every company to verify the data on the platform. So, companies can see what we have on them and, I think, [this is] quite a powerful way of creating a dataset but also giving companies the ownership of what kind of data we have.”
The company’s algorithm and dataset of public company information allows investors to sign on, type in the name of a public company such as Alphabet Inc., for instance. From there it displays a UN Global Compact score, which is an assessment on anti-corruption risk, environmental risk, human rights risk, labor risk etc.
Investors can drill into underlying raw data that ESG Book has gathered on a company to better understand things like a company’s scope 1, 2 and 3 emissions.
It can also show the distribution of a portfolio or company’s performance and allows investors and fund managers to compare the data to see how that performance stacks up against industry or competitor averages.
“ESG Book is a platform with the potential to transform the way ESG data is processed by the financial world. We believe it will substantially increase the quality and availability of ESG information to direct financing flows in accordance with sustainable development goals and the Paris Agreement,” said Thierry Deau, founder and CEO of Meridiam, one of the leading investors in the series B round. Sustainability can’t remain a ‘buzzword’ in the C-suite.
As Klier notes, sustainability is still a buzzword for many CFOs. And though ESG Book’s platform will equip investors with real-time, granular sustainability data, it’s equally of use to CFOs to help them understand how to communicate ESG data and make lasting improvements for their companies.
“I think it’s a critical moment for sustainability. Because, in my view, we spent the last five years talking a lot about it and making it a big topic,” Klier said. “Now, the expectations of all stakeholders are huge. I think it’s a critical time to redirect investments and redirect flows.”
As for what’s next for ESG Books, Klier says the series B injection will allow the company to prioritize its next focus: to work with investors to create greater transparency in private markets.
ESG Book’s growth is part of the larger ESG data and services market, which is projected to rocket to $5 billion by 2025.
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Author: Ashleigh Hollowell