Guest article by Coriolis Technologies CEO, Dr. Rebecca Harding
Have we reached peak ESG?
From HSBC’s “Stuart Kirk Moment” telling investors they needn’t worry about it to the commentary that ESG has shifted and “got geopolitical”, it seems that the world is already tired of a concept that might say more about greenwashing than it does about making the global economy more sustainable.
At Coriolis Technologies, we regard ESG as a new wrap-around for an age-old concept: how do you make businesses operate in a way that maximises value overall and not just shareholder value? Companies focused on managing their “intangibles”, such as their relations with their communities, how they manage their people, how they innovate, and how they deal with waste and fuel efficiency, are known to be more productive and, hence, better investment prospects.
If there is a sense in investing in those types of businesses, then it stands to reason that finance is a vehicle for catalysing change. The problem for investors and Financial Institutions alike, however, is that there is no standardised metric for measuring country, company, supply chain or transaction level sustainability exposure. Everyone has a different definition of ESG with different focuses, leading to a diversity of ratings because there is no consistent standard globally.
Coriolis views this challenge as the biggest one the sector faces: in essence, standardised data has become a regulatory requirement. Any rating or metric has to be automated, independent and scalable because it has to:
- Apply equally to emerging markets or small and medium-sized businesses as it does to the most significant economies or largest corporates in the world;
- Be independent and standardised so that the same metric is used everywhere; and
- Be scalable because ESG risk applies equally to countries, supply chains, companies and transactions.
These matters are not yet considered by regulators, and, as a result, the risks of Greenwash are high.
Our solution addresses this – it is Automated and relies only on publicly available data to score a country, a company, a supply chain or a transaction. It is independent and standardised, matching products to sustainable development goals and regulatory taxonomies. It is scalable because the technology infrastructure is more straightforward than the alternative, questionnaires and self-reporting. It is more efficient because it takes a day and a half to fill in questionnaires currently in the market; if you have 6,200 suppliers, it takes nearly 25 person-days to get one assessment for one transaction. Our automated score takes 30 seconds. Finally, the system flags ESG risks through a simple display, so businesses no longer need to independently research how to improve sustainability efforts.
An example of a low-performing company would be Shell which receives a Sustainability score of 355, whereas a high-performing company would be Disney Cruiselines receiving a score of 726. But perhaps the most exciting feature of what we do is that it does not seem biased against emerging markets or smaller businesses. Emerging markets do better than higher-income ones because they consume less of the higher-end consumer durables responsible for the ESG challenge we currently face. Our approach will likely gain traction across Africa and emerging Asia in a way that other metrics may not.
There is real value in the ESG market because it promotes sustainable business investments in every sense of the word. However, it is being over-hyped; the real risk is that we miss an opportunity to use investment and finance to stimulate change by tarring a standardisation brush with Greenwash.
Also not to be overlooked is a byproduct of having such comprehensive data is that we at Coriolis have created an
- enterprise software/infrastructure that integrates disparate information about countries, supply chains, companies and transactions that are currently siloed in businesses and banks.
- This is where our data solution reduces trade friction/improves performance/reduces the risks of human error among other benefits.
So these are two benefits of our SaaS solution – a dynamic, real-time, credible ESG rating system and a business improvement platform also. This is why we have asked ScaleUp Group to obtain growth funding to accelerate our 100%+ sales momentum we are now achieving.