The market for sustainable and green-friendly investments is rapidly expanding, creating an opportunity for those looking to invest responsibly. More than one-third of the world’s capital, or $120trn, is already committed to investing sustainably or for impact.
For investors that want to make a positive impact on climate change and society, the challenge is knowing where to put their money. Once it’s there, it’s about knowing that it has the right effect.
This is where Net Purpose, which was highly commended in the Moving Financial Markets category of the ICAEW-backed 2021 Finance for the Future Awards, saw an opportunity three years ago. The business provides data on sustainable investments and impact investment for those seeking “profit and purpose”. Investors can use the data to measure whether the funds they are invested in are actually impacting the environment and society in a positive way.
In 2021, a pivotal year for the business, it worked closely with institutional asset managers who manage more than $3.5trn in assets under management and who are investing actively to achieve environmental and social goals.
“It’s been an exciting year. We’ve really invested in the value of the product and the users who are using that to invest in sustainability or for impact,” says Samantha Duncan, co-founder and CEO of Net Purpose.
“We are sitting at the epicentre of standards that are rapidly evolving in terms of what to measure for sustainability and green finance. We seek to create the data infrastructure to underpin those standards with quantitative facts, so that investors can measure the impact of their portfolios in line with all of their global standards.”
In 2022 the biggest challenge on the horizon for data firms and the investment industry is the global standardisation of accounting frameworks. Maybe the biggest announcement at COP26 concerned the IFRS taking an increasing role on harmonising accounting standards for sustainability and impact.
“This is a big opportunity for the sector – and we commit to make sure that all our data aligns to whatever they agree,” says Duncan. “We are finally getting to convergence where we all need to be on the one page on what we measure and why and help drive the world around those metrics.”
But there is further rationalisation on the cards, which goes to the heart of impact investing, and that is to pin down what each investment means and define the semantics more closely. “Multiple standards make everything confusing. Even ESG, what does that mean? It’s not as clear as profit, or net profit after tax, or IRR, which are concrete terms. ESG is a broad coverall for everything. The whole world wants to invest in ESG, and what that means to everyone is so different,” she adds.
The investment industry needs to deconstruct ESG to the point that it is more actionable. “Climate is one deconstruction: it’s a big challenge, but it’s one tangible concept we can all understand. We also have a clear goal: reduce CO2 emissions year on year between now and 2050. We can track emissions data to help investment into the right businesses.”
An investor can measure the growth of carbon emissions in their portfolio and, if it is not on track, choose companies that are, she says. Capital therefore moves to companies that are on track.
“Once investors are on the platform looking at the data in a consistent way, then companies have a way to standardise what they report,” she adds.
“A key challenge for companies in the absence of standardisation is that all their investors are asking them for different things because everyone has this different definition of ESG. We need to deconstruct ESG into clear pieces, which the standardisation of accounting will greatly assist.”
Finance for the Future excellence
The Finance for the Future awards programme is a partnership between ICAEW, A4S and Deloitte. The awards recognise and showcase high-quality examples of financial leadership. They're also about inspiring others, boosting ambition and building community by sharing knowledge and creating momentum for real change.
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