Growth (and challenges) of sustainable investing
As man-made climate change and global warming are increasingly recognised as the most important challenges facing the world, retail and institutional investors are looking beyond pure financial returns to understand what environmental, social and governance (ESG) impact their investments are having. Asset managers are responding by launching investment products that are socially conscious by design. According to Morningstar data, the amount of global assets under management (AUM) committed to “investing sustainably” has more than doubled from $1tn as of Q4 2019 to $2.5tn as of Q2 2022 and over 1,000 new ESG funds were launched in 2021. We believe this represents the beginning of a secular transition that will continue for decades with investment performance assessed against additional, non-financial metrics.
While client demand for sustainable funds is strong, fund managers face challenges when implementing their investment strategies. Most importantly, many of the existing ESG data and ratings products on the market fall short of fund managers’ expectations for transparent, accurate data, much like the financial data they receive. There has been a slew of critical press articles about ‘greenwashing’ by asset managers, who are marketing ESG funds that rely on these simplistic ESG ratings. Large financial data providers such as S&P, Morningstar, and Nasdaq publish ESG ratings for listed companies that attempt to reduce the various complex underlying issues inputs (carbon emissions, gender diversity) to a single number or letter. Furthermore public companies are able to game these ratings to the extent that businesses that are self-evidently poor ESG investments – such as Rio Tinto or Exxon Mobil – achieve similar ratings to an electric car company like Tesla. Discerning asset managers and their clients have become wise to the superficial nature of many current ratings products, which are actually undermining ESG in an investment context.
Net Purpose’s solution
Net Purpose is solving this problem for the global asset management industry. Sustainable investors seek ESG data companies that can provide them with clear, transparent data from primary sources rather than subjective, opaque, amalgamated ratings. Our market research and conversations with Net Purpose’s customers revealed that many buy side analysts are manually collecting and collating company disclosures in internal spreadsheets for hundreds of companies. Net Purpose does this work of gathering data from public filings as well as from third-party sources, then scrubs and structures it to allow comparability across companies.
The Company’s product solves an important industry issue, namely ESG data integrity. Users can click through each data field to arrive at the original source of data used as the basis of Net Purpose’s ratings for individual issues (e.g. carbon emissions or workforce diversity). In short, Net Purpose is building the source of truth for ESG data as companies like Bloomberg and Refinitiv have done for financial information.
The Company is already working with some of the world’s largest investment firms and the Company’s data is powering over $45bn in sustainable funds today.
Net Purpose was founded by Samantha Duncan who experienced the challenges with incumbent ESG data products first-hand in her prior role as Head of Impact at Leapfrog Investments – a leading impact-focused private equity fund. Her deep expertise in financial markets and familiarity with the challenges facing ESG-focused portfolio managers makes her the perfect founder to tackle this problem. She has assembled an impressive team with experience across financial data and SaaS businesses. Net Purpose’s Chief Commercial Officer, David Wilson, is the former COO of Financial Services Division at IHS Markit up until it was acquired for $44bn in 2020. CTO Alex Woodham brings deep familiarity of applying ML / NLP in financial services from Eigen Technologies and Constellation AI.
We are delighted to be investing in Net Purpose’s £10m Series A, led by ETF Partners. We are excited to support the team as they build the leading data business for sustainable investors globally.
Sam Duncan, Net Purpose founder and CEO said: “Net Purpose’ core differentiator is that we provide investment-grade facts on the social and environmental performance of companies and investment portfolios and no black box ratings or scores. Facts measure social and environmental performance, not financial risk. Net Purpose also has more and higher quality data than any other provider.”