In a contributor opinion for Conviction, the founder and Chief Customer Officer of the carbon management startup Planetly, Anna Alex argues for more data, technology and transparency in measurement for businesses to take meaningful climate action and for investors to build planet-positive portfolios.
Anna’s Planetly enables companies and funds to calculate, reduce and offset carbon emissions. OneTrust recently acquired the Berlin-based startup to expand the ESG offer of its data business which, according to Tech.eu, boasts half of the Fortune 500 as customers. Previously, Anna built the digital ecommerce brand, OUTFITTERY and was among the 100 German entrepreneurs that launched Leaders for Climate Action in 2019.
ESG disclosure is in the spotlight from the markets to new regulations, making it one of the most significant determinants in investing and, therefore, fundraising strategies. Investors across the board have an increased focus on ESG disclosures to help them understand more about how a company performs, makes decisions, and creates value and impact. Regardless of a company’s lifecycle stage or focus - even sustainable and social purpose startups - a lack of transparency in reporting puts any business at increased risk of losing out on key funding.
According to the Edelman Trust Barometer, 88 per cent of institutional investors believe that companies that prioritise ESG initiatives represent better opportunities for long-term returns than companies that do not. Those preferences feed into the decision-making process to invest, beginning at origination.
“Regardless of a company’s lifecycle stage or focus - even sustainable and social purpose startups - a lack of transparency in reporting puts any business at increased risk of losing out on key funding.”
With regulations and reporting frameworks evolving faster than ever, ESG reporting is no longer just a ‘nice-to-have.’ More and more, large EU and UK companies and financial market participants are required to comply with new regulations, including the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR) and the Taskforce for Climate-Related Financial Disclosures (TCFD).
The performance of ESG-related indicators has also become a major challenge within the private equity industry with the increasing number of Limited Partners demanding ESG data in their due diligence.
All investors need more ESG visibility and reporting for full transparency across their own portfolios.
Here’s a quick 5-step guide to consider your approach to transparency in portfolio management and how to think about fundraising, on the other side of negotiations, for business leaders.
#1 Define the sustainability strategy
Investor decisions are usually based on these criteria: a company’s performance as a steward of nature and its use of sustainable practices (environmental), management of people and resources (social) and effective leadership and business practices (governance).
Get your environmental, social, and governance proposition right. That is inevitably linked to higher value creation. A strong ESG position drives growth and attracts top talent on a portfolio company level, and secures and increases the value on an investment firm level.
#2 Choose the ESG reporting framework
There are multiple frameworks and standards that can help your company establish ESG performance measurement. Define an ESG reporting framework that combines both ever-evolving regulatory requirements and industry standards.
Some of the most widely used and recognised are The Global Reporting Initiative (GRI), helping businesses, governments and organisations understand, develop and communicate sustainability metrics. The Sustainability Accounting Standards Board (SASB) developed a global standard for identifying, managing and communicating financially-material sustainability information to investors. The Climate Disclosure Standards Board (CDSB) helps organisations integrate information related to climate change in their financial reporting.
By adopting an ESG reporting framework, you show all stakeholders that you are serious about sustainability.
“A strong ESG position drives growth and attracts top talent on a portfolio company level, and secures and increases the value on an investment firm level.”
#3 Enable and educate your portfolio
Portfolio companies go through a learning curve when implementing ESG reporting, and most are in the early stages of their journey. Make sure to educate them on best practices on how to understand, calculate, and find ESG data.
By teaching your managers the necessary skills to understand ESG and what investors need, you save time and increase data accuracy, easing some of the common issues.
Also bear in mind that there are some challenges along the way. For example, carbon transparency is still the most complex part of ESG management. The calculation of a corporate carbon footprint is time-consuming and takes on average 6-10 weeks. According to a BCG survey, 91 per cent of companies are failing to measure the full scope of their emissions. But, failing to report properly might have long-term effects on your ESG strategy.
#4 Periodically collect ESG data
After developing the ultimate goal you want to achieve, set targets, and collect ESG data according to the defined framework and regulatory requirements. Meaningful data is clearly defined, internally and externally relevant, and measurable. ESG data hygiene matters and allows you to aggregate data on a fund and investment firm level.
“Meaningful data is clearly defined, internally and externally relevant, and measurable.”
#5 Disclose and steward
Robust data is a core foundation of reliable ESG disclosures. At the same time it is one of the most significant barriers for companies to operationalise their ESG principles. Steer portfolio management based on collected ESG data and compare portfolio performance based on benchmarks. Discuss the metrics regularly in board meetings and use aggregated ESG data for disclosure requirements and Limited Partners reporting. Moving forward, benchmarking your activities among peer companies, seeking investor and other stakeholder input and learning from media discussions could all be ways to challenge thinking and drive change.
“While ESG reporting is about setting goals, it is also about measuring your progress towards them. Otherwise, ESG is a two-way mirror.”
As investors pour record amounts of money into environmental, social, and governance strategies, regulators try to define common standards, and companies make even more pledges to play their part, ESG reporting is at the centre of it all. At Planetly by OneTrust we have recognised these market dynamics in an integrated platform for financial investors to implement ESG management of their portfolio and facilitate processes around reporting. Because, while ESG reporting is about setting goals, it is also about measuring your progress towards them. Otherwise, ESG is a two-way mirror.
Anna Alex, Founder & Chief Customer Officer (CCO) of Planetly
Anna Alex is the founder and Chief Customer Officer (CCO) of Planetly, a digital climate tech that enables companies to calculate, reduce and offset carbon emissions. From 2012 to 2018, Anna built the personal shopping service OUTFITTERY which she continues to support as a board member. In summer 2019, Anna joined the climate protection initiative Leaders for Climate Action, launched by more than 100 digital entrepreneurs in Germany.
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