The sustainable investing space is in the midst of a massive growth spurt, but it hasn’t grown to such great heights without some growing pains.
A preponderance of these pain points orbit around a few key c-words: consistency, comparability and comprehensiveness across ESG products — with measurement methods chief among them. But, as anyone keeping a pulse on the space would likely know, the sustainable investing industry is entering a maturation phase unlike any prior.
For context, many factors are at play, but two key components of this maturation stand out. First, financial regulators of the world’s largest capital markets are preparing climate disclosure rules for corporate issuers. In the case of the European Union, they are already enforcing sustainability reporting requirements for both corporate issuers and asset managers. Second, and complementary to these regulatory advances, is the International Sustainability Standards Board’s delivery of proposals to create a comprehensive global baseline of corporate sustainability disclosures.
Given that the pavement on ESG’s maturation path is starting to dry, a new relationship between Planet, an Earth imaging company, and financial services stalwart Moody’s to address the growing demand for information about ESG risk piqued my interest.
Trust, with more verification
If you’re not familiar with Planet Labs, the organization — founded by three former NASA scientists — aims to “use space to help life on Earth.” If you’re curious, here is a lucid description of just how they do so.
As a guy who nearly vanished in the forests of the northern Sierra Nevada (multiple times) when tasked with mapping dying trees for the United States Forest Service, I’m less than qualified to dig into spatial, temporal and spectral resolution. But, the layperson’s takeaway: Planet operates more than 200 satellites that capture 15 terabytes of data per day, every day, and they’re keeping it forever. That’s about as robust a historical record of what’s actually happening on Earth that could be produced.
“This is a new domain, which we can think of as spatial finance,” Planet Chief Impact Officer Andrew Zolli told me. “Planet’s data is an essential ingredient in what I think are going to be ESG indicators of the future, but it’s not the only ingredient.” That is, Planet’s network of satellites can capture every act of deforestation the world over, but they can’t tell you who owns each tree.
This is a new domain, which we can think of as spatial finance.
I’d say that’s pretty comprehensive. What about consistency?
Back to Zolli: “There’s a larger secular change that’s happening in capital markets. They’re beginning to be informed by these material, but non-financial, measures. And for Planet’s data, it’s not just that it’s global and high resolution — it’s consistent. We’re observing Beverly Hills, Bangladesh and Brazil with the same resolution and frequency and with all the same instruments, and we’re not choosing between them.”
Which brings us to the comparable factor. The sustainable investing space needs reliable standards by which a spectrum of stakeholders can understand how planetary changes are occurring. But, given major information deficits, a perennial challenge for sustainable finance and ESG investing has been the challenge of doing apples to apples comparisons on issuers’ ESG profiles.
While there is no panacea for ESG’s comparability woes, agreements such as that of Planet and Moody’s hold promise to bring the type of data rigor needed for a proper apples to apples exercise. Just like Microsoft’s “Planetary Computer” for assessing, monitoring and managing natural ecosystems data will not single-handedly slow the sixth mass extinction we’re living through, but it’s certainly of major help. Simply put, there is plenty of potential for more relationships like this.
Moody’s, with its deep history of working with information and producing the kind of bedrock assessments that help drive the financial system forward, coupled with Planet’s command over spatial data could be a real “Chocolate and peanut butter cookie combination, from a data perspective,” as Zolli described it.
In a space overflowing with froth, a relationship of this nature is an “adults in the room” kind of assessment of what’s under the hood in ESG and an opportunity for ESG to scale, sustainably and credibly.
I hope to smell more chocolate-peanut butter cookies like this coming out of the ESG risk intelligence oven in the year(s) to come.
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May 4, 2022 at 02:18PM