Our investment in Net Purpose — the missing data you need to measure Impact outcomes

Katherine Wilson
Dec 10, 2020 · 5 min read

A fundamental change in the way we assess corporate performance is underway and there is a severe lack of data to enable this shift. We’re proud to announce that we are leading a $2.5m investment round into Net Purpose, the first data provider for Impact outcomes, investing with Revent Ventures, Lord Jim O’Neill, former chairman of Goldman Sachs Asset Management, and Kevin Gould, co-founder of IHS Markit.

There is so much more to a company than the top-line earnings that get reported

In our first meeting with Samantha Duncan, co-founder and CEO of Net Purpose, she shared an anecdote that struck a chord. She threw back to her early days as an investment banking analyst at Goldman Sachs…

“Day in and day out my primary focus was earnings accretion/dilution; accretion/dilution; accretion/dilution… and I just thought, ‘surely there is more to a company than this?!’ ”

She is right. When it comes to measuring the financial performance of companies, we have tools and data sets from providers such as Bloomberg, FactSet, DBAG, etc to support the analysis. When it comes to measuring impact on the other hand, not only are there a lack of tools to support any detailed analysis, we do not even have reliable, comparable time series data sets for the basics.

This is the problem that Sam, Dinah and their team have set out to solve.

Investors (professional and private), regulators and governments are all demanding change…

The example above is not isolated. Failing to take these broader factors into account for both investments and corporate planning is leading to decisions being made without all the relevant facts.

PRI signatories and AUM committed to investing sustainably continues to increase.

Our view is that over the next decade, data providers like Net Purpose will begin to quantify many of the aspects of company behaviour which, until now, have been largely subjective and more of an afterthought. These data points will move from being alternative to mainstream and any market participant not factoring them into their analysis will be putting themselves at risk of mispricing assets.

We do not believe this is a passing ‘feel good’ fad. Nor do we believe that Impact & ESG can be satisfied with a box ticking exercise after the fact. Being able to properly quantify and measure these factors makes cold, hard business sense given the revenue opportunity for managers who can capitalise, and the regulatory risks for those who cannot. Asset allocators are moving in this direction already. According to the signatory statistics from the UN’s PRI one third of the world’s capital, c$100trl, is now committed to investing sustainably. This is big business.

… but how can you invest sustainably if you do not have the data to assess what that is?

Signing up to an agreement is one thing but following through is another. All this capital will be obliged to report detailed metrics on the performance of their portfolios against various global sustainability goals and frameworks. This is simply impossible to do without the right data; readily available and packaged in a way that can be fed into the existing industry workflows.

Most of the data points captured by Net Purpose are hidden in financial statements and not reported in a consistent way. Finding and cleaning this data is hard.

That sounds simple enough — but there are no widely accepted standards that tell you either what to include or how to measure it. How would you assess how well a company is doing against the UN’s ‘financial inclusion’ or ‘water usage’ goals if you not only had no data to feed into a formula… but no formula to start with!?

Sure — you could hire some PHDs or commission academic experts for their views, build a vast data collection engine which scans all company disclosures for the right data, model the gaps, feed this data back into your newly commissioned internal models to generate reports to share to clients… but what happens when standards evolve? Or if there is a change in the way a company reports? How will you find enough talent? How much will it cost? These are the questions Sam and Dinah asked themselves at LeapFrog and UBS when they were tasked with measuring impact and found no solutions to help them. Spotting the gap they set out to build a data provider to fix this.

No equity analyst would accept a rating of ‘A’ on financial accounts and say they had enough data to perform their analysis

Ratings agencies were the early movers in ESG who developed products to meet the initial market needs. Their scores were some of the first judgements on a company’s ‘environment, social and governance’ characteristics. The problem with these scores is that they are just that. Scores. While scores are very useful products for certain kinds of analysis, like creditworthiness, they fall short in others, like ESG & Impact.

There are many nuanced decisions made behind the scenes which weigh heavily on the ultimate result. How each of these factors is considered cannot be readily seen or changed by anyone who might have had an alternative view… Given the widely reported disparity between scores, it’s clear that alternative views are not exceptions, they are the rule. This divergence of opinion indicates to us that scores are not the answer to the Impact problem. We think the answer is reliable, comparable, time series data sets which allow users to come to their own conclusions based on what they choose to prioritise.

There isn’t a fund we know who has a ‘Head of Income Statements’ or teams supporting them

Before regulators and exchanges adopted common accounting standards like GAAP the day-to-day job of many analysts was forensically going through what was reported to try and spot something the market had mispriced. We think we are at that stage with Impact & ESG.

There are funds with titles such as Heads of Sustainable Investing who review not only how performance is reported to clients (where much of the budget today currently sits), but also how to create new products in response to rising client demand, and generate alpha or outperformance (which, according to this FT report, they do!). With resources increasingly constrained, we do not think it makes sense for this data collection to be in house. Investors rely on external providers for the line item break downs of accounting statements. We think this is where we are heading with Impact & ESG.

We are backing a team who understand the data that matters and how to capture it

Sustainability, impact and climate are ‘hot’ topics but not every team will be able to bring a product to market and win trillion dollar, institutional clients. Having the right balance in a team of deep Impact expertise, industry knowledge and tech nous is key. We believe Sam and Dinah have this in spades and are building a complimentary team around them as they establish Net Purpose as the global leader in impact data. We are thrilled to be supporting them and look forward to helping them in this journey.

Illuminate Financial

A VC firm backing enterprise tech companies that solve…

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