The birth of the term ESG, (Environmental, Social and Governance) can be traced back to an IFC report published in 2005, titles “Who Cares, Wins.” ESG today is widely accepted as a means to test for social impact of businesses. Investors are more frequently looking into these criteria when considering their investment portfolios and as a result businesses are also ensuring that they keep these values in mind and build their business as an ethically and socially responsible one. This is why private and institutional investors are now placing capital into companies that meet ESG criteria. PWC estimates that by 2025 between 41-57% of Asset and Wealth Management in European markets will be in ESG dedicated funds.
The startup world is beginning to respond to the market demand for data that qualifies such target investments for asset managers. One such startup, Clarity AI, founded by Harvard Business School alumnus, Rebeca Minguela, gives stakeholders access to tools that enable them to assess the social and environmental impact of their investment portfolios. They offer both products as well as consulting services. The company recently raised $15m from investors that include Deutsche Borse and Mundi Ventures. Clarity already boasts broad coverage across 1000+ metrics, for 25k+ companies across almost 200 countries. This enables investors to gain deeper insight into how companies that they invest in fare in regards to ESG factors, and assess their portfolio against these criteria, for better decision making.
The social impact that businesses have has increased in priority, over the years since IFC’s report was published. According to the Minguela, demand for Clarity’s services have increased by three times since the pandemic hit, signalling a greater awareness for ESG. The recent funding that Clarity has received will enable them to scale the business and continue to solve societal problems, by equipping clients with greater insights.
Whilst Clarity utilises artificial intelligence to cater to the needs of investors, 60 decibels, a global social research centre, relies on human intelligence to drive social impact. The company uses the Lean Data approach to access data in a way that is cost efficient and enables businesses with lean resources, that have social impact at the heart of their objective, to collect important and quality data. This unique combination of data analysis and communication to gain information, involves interacting with and making heard the stories of those who are directly impacted by environmental, social and governmental factors. At 60 decibels, researchers conduct interviews with thousands of customers, employees and beneficiaries each month, in order to obtain factual insight and aid clients with their mission to enhance social impact. Speaking to ErlyStage, co-founder Tom Adams explained what the company is “aiming to do is listen to the end user, so they can state what is material and impactful to them.” This ‘humanises data points’ whilst also providing businesses with the information they need to maximise their social impact. The company caters to funders, as Clarity AI does, by assessing the social impact of investment portfolios, as well as Enterprises, by providing them with greater access to consumer trends and demands. As such, 60 decibels goes further than focusing solely on investor needs, but also brings the experience of communities to the forefront. To date, the company has conducted over 600 Lean Data projects in 58 countries and provided social insight by listening to over 100,000 people.
Key ESG offers a SaaS solution that helps businesses break down the complexity around ESG regulations, thereby enabling them to better understand, focus on and deliver their ESG goals. The company was founded on the belief that existing ESG solutions are primarily focused on asset managers; and the founders want to develop a software that is designed with the business user in mind. The Key ESG software reduces the hassle that comes with navigating ever changing regulations, by identifying the most important ESG metrics, allowing companies to assess their performance relative to competitors and provides actionable guidance on how to improve on ESG going forward. Whilst ESG has long been a key consideration for large organisations, both due to government scrutiny and investor concerns, it is increasingly becoming relevant for small and medium sized enterprises to start integrating ESG strategies and management into their businesses. In a conversation with ErlyStage, founder Anne-Marie Schoonbeek mentions; “the European Parliament recently recommended a draft Directive that would require all EU companies, regardless of size, to implement human rights due diligence processes across their value chain.”
Younger investors are greatly concerned about ESG and invest in companies that deliver on these objectives. Therefore, there is a greater regard for these factors at board level, since institutional investors want to invest their wealth into businesses and causes that can give them a return that is not just financial but also positively impacts our planet and society. AI is a great driver for the growth of these standards.