Sustainable investing has been booming, and even more so during the coronavirus pandemic. But despite the growing enthusiasm, the terminology, measurements, and reporting standards surrounding environmental, social, and corporate governance (ESG) remains baffling.
For investors and fund managers peering through the vast and often murky ESG lens, the task becomes daunting: how can companies be properly vetted when the information available is limited and reporting standards so varied? How do you avoid the greenwashing and measure the real impact a company is having on the planet, beyond its good governance practices?
Geneva-based entrepreneur Bertand Gacon experienced these challenges first hand during his 15 year-career managing investment portfolios at BNP Paribas Wealth Management and Lombard Odier in Geneva. Among his bugbears, he said, was that ESG ratings did not really measure the impact of a company, but rather how they operate: “Having good practices is not the same thing as making a positive impact.” Frustrated with the lack of research available and benchmarking tools, he decided to come up with his own solution.
Making an Impaakt
In 2018, Gacon co-founded Impaakt, a peer-review platform that measures how sustainable companies are using a cohort of analysts around the world. Think of it as “the Wikipedia of impact investing”: anyone can become a contributor. Impaakt offers a training programme to become a “certified impact analyst” and then rewards them for each piece of research published.
“The idea was to create a collaborative platform where it's not only one single expert, somewhere in Amsterdam, Geneva, New York or Tokyo that is deciding what's the impact of Toyota or Nestlé. But it's thousands of brains that come together, each of them sharing a big part of the information, and creating a mechanism that is able to combine all of that information in a structured and organised way.”
Now almost two years on, the company has recently completed its second round of fundraising, securing over 2.5 million Swiss francs. His focus now is growing Impaakt’s community of analysts and its bank of research ahead of targeting clients. To do that, the start-up is integrating artificial intelligence into its platform to help its contributors scour the internet for sources of public information - not always the easiest feat.
By offering a pool of data on hundreds of companies, Impaakt says it is directly taking on traditional in-house sector analysts, where one expert will typically track the performance of dozens of companies: “That’s the power of the model in terms of cost-efficiency.” Gacon said. “Instead of that single-expert model, we just open it up to thousands of potential contributors.”
But that’s not to say it is easy to become part of the club: of the 15,000 people who have registered to the platform, only 250 have qualified as analysts so far. So how is the start-up actually go about scoring and evaluating the impact - both positive and negative - of individual companies?
‘Doing the right thing’
When new data is published, members of the Impaakt community rate each brick of analysis published by their peers and can decide for themselves what should be considered a greater positive or negative impact. Impact scores are then generated by the ratings given to the analysis and these are consolidated to reflect “civil society’s collective thinking” around different, and often sensitive topics.
“We don't let a single expert decide that obesity is a more important topic than plastic pollution. The reality is that nobody knows, how much impact or what weight you should give for each of those topics. For example for Nestle, is it their performance in terms of water privatisation, obesity, or plastic pollution?…”
Even with a growing platform and a band of eager contributors, one of the challenges remains finding publicly accessible information. But with growing public awareness, rising shareholder activism, and pressure on companies to be more transparent on their business values in their response to the growing environmental crisis, Gacon said this is already changing.
“The good news is that the focus of civil society on impact topics has nothing to do with what it was only two or three years ago. The amount of data and reports and studies and articles are now being produced around the issues of sustainability, social inequality, environmental pollution, and all of that is 100 times what it was before.”
Previously chairman of Sustainable Finance Geneva between 2012 and 2016, Gacon has been at the heart of discussions and debates on defining ESG standards and how the financial industry can play its role in advancing the sustainable development goals (SDGs).
What really matters, he said “is the sum of the positive and negative impact that these companies are having on the planet, through their practices, but also through their product and services.” Gacon adds:
“What we do at Impaakt is we go beyond measuring whether companies are doing things right; this is what ESG data does. What we want to measure is whether companies are doing the right thing, and that is very different.”