At next month’s COP26, the world’s global leaders will gather to discuss the critical and urgent steps we need to take to slow climate change. Key to the agenda will be an exploration of the role that finance, both private and public, will play in addressing the climate crisis.
Right now, there is $90tn worth of capital signed up to the UN’s Principles for Responsible Investment. At the same time, interest in sustainable investing is reaching an increasingly mainstream audience. For example, earlier this month, Prince Harry, Duke of Sussex, and his wife Meghan Markle, Duchess of Sussex, announced they are joining sustainable investing fund Ethic as impact partners, to encourage people to invest in companies with strong sustainability credentials.
But here’s the problem: deciding what is and is not ‘sustainable’ or ‘impactful’ is very hard, and regulators are – rightly – scrutinising whether fund managers’ claims of sustainability are legitimate when the data is limited to verify claims.
While ESG and sustainable investing are at the heart of a growing number of portfolios, there remains a clear gap between what is measured and managed to prove alignment with climate goals. Measurement standards abound, and disclosure of company and investment performance is voluntary, though rapidly improving.
In our decades of experience, a large part of the problem is that there is no credible, comprehensive compilation of existing social and environmental performance data that would enable companies and investors to track their performance vs global goals. While metrics have long existed for financial performance, quantitative facts on the social and environmental performance of companies have historically been hard to come by, though are now rapidly improving. COP26, for example, in its Building a Private Finance System for Net Zero report published ahead of the summit next month, has raised the issue of existing climate metrics failing to adequately measure climate transition.
Accurate and reliable data is the core of a trustworthy financial system, and to take impact investing to the next level, new standards for data collection and measuring performance need to be widely adopted. Financial markets provide a great analogy, as they are currently supported by a $30 billion financial data industry that enables every investor to effortlessly access data on financial performance. It’s crucial we build an equivalent infrastructure for measuring an investor’s contribution to social and environmental goals. With companies now reporting how they perform on environmental and social metrics, the opportunity to do this is here.
Separate from data on ESG policies that measure what a company intends to do, the data infrastructure we need to build must focus on social and environmental performance, i.e. the real-world outcomes a company creates that align with global goals. We need to be able to compare the actual social and environmental outcomes of funds – indicators such as how much CO2 emissions are generated, or how many patients have been treated – and we need to be able to understand the trend and the rate of change.
It’s the core challenge my co-founder Dinah Koehler and I are tackling head on at Net Purpose, inspired by our previous roles working as responsible and impact investors. One of the biggest challenges we faced was the lack of quantitative social and environmental performance of companies – and Net Purpose aims to fill that gap.
Net Purpose offers a platform that collects, cleans and aggregates social and environmental data and puts it all in one place. Our mission is to make impact measurement effortless for one million investment professionals by 2025, and accelerate progress towards global goals. Our audience is a new generation of investors that are investing not just for profit but also for purpose.
Making impact measurement effortless has the potential to change the way people make investment decisions. Without this data, investors will struggle to direct capital towards truly impactful companies and solutions. Companies will struggle to know what to report. Consumers, too, will struggle to make good choices on where to buy.
In the future, platforms such as ours offering data to investors must map all evolving standards, so investors know they’re at the forefront of performance thinking and regulatory compliance. Data must come not only from companies themselves, but from alternate data sources – regulators, alternative datasets, and scientific literature – so it’s cross-referenced and validates impact. And all data must be intended to measure performance against global goals.
We’re excited to work on this challenge every day and the team at Net Purpose is on a mission to change the code of capitalism to a more sustainable form! We are excited to see the outcome of COP26 and the decisions global leaders make. As discussions at COP26 will no doubt show us – we don’t have time to waste.