What Upright means for tech investors in Asia Pacific
Published on July 26, 2022
At its core, environmental, social, and corporate governance (ESG) is a framework for addressing long-term risks that organizations may face in years to come. In the realm of finance and investment, it’s a fast-growing vertical and global ESG assets are likely to exceed US$41 trillion in 2022 and US$50 trillion by 2025, says Bloomberg Intelligence.
From an ESG reporting perspective, the European Union is undeniably the most progressive and consistent player, namely the countries in the north. In June 2022, it reached a political agreement on a new Corporate Sustainability Reporting Directive draft, which will replace the current reporting mandate and extend its scope, likely by the end of the year.
According to sustainability investment research firm RobecoSAM, Sweden topped the charts in 2021 as a leader in sustainability. Trailing closely behind were its Nordic neighbors Finland, Norway, Denmark, and Iceland.
Meanwhile, in the context of whether ESG reporting rules are lax or strict, the United States tends to oscillate. It often depends on which political party is in power at a given moment – a weird situation, to say the least, and most certainly exacerbated by the country’s increasingly polarized politics.
That said, the Securities and Exchange Commission (SEC) is evidently working hard to create more transparency in ESG reporting, with new rules that require at least 80% of assets in funds labeled for ESG to be used for precisely that purpose.
Closer to home, here in Asia, it’s definitely still a wild frontier. China appears to be making an effort in terms of acceptable ESG reporting. The nation’s first voluntary framework for corporate ESG disclosures came into effect in June 2022.
Fund Europe asserts that most Chinese companies don’t have established processes for gathering ESG information, and lack people trained in doing so. Nonetheless, ESG disclosure has slowly become widespread in the country. According to JP Morgan, 86% of companies traded on the Chinese stock index known as CSI 300 produced ESG reports in 2020 – a significant uptick from 49% in 2010.
Square pegs and round holes
The biggest hitch to date in the world of ESG reporting – and particularly for investors – is that there is really not yet a universally accepted reporting standard that all nations and companies can agree on.
To give perspective, right now, there are over 600 ESG reporting standards. Some firms simply use their own frameworks and pick their own parameters based on their own industries – often without any regulatory oversight. Needless to say, this can create colossal problems when it comes to courting foreign institutional investors.
The company in question may have to spend hundreds of thousands of dollars, if not more, to carry out its evaluations and reporting. It may then turn around only to swiftly realize that its ESG framework simply does not conform to the expectations of the potential investor.
In some extreme cases, this can lead to the company’s board concluding that a serious examination of the business’s ESG hygiene is not worth the time, effort, and money. In such a case, the company may instead just do the bare minimum to stay on the right side of the law, which, as we all know, is not enough.
What is The Upright Project?
ESG practitioners across the globe understand this problem. As such, many are turning to The Upright Project, an organization that’s increasingly being viewed as the ESG touchstone for investors, companies, and governments alike by quantifying the net impact of companies.
Upright’s mission is to incentivize companies to optimize their net impacts. To do this, it is building and implementing a model focused on what companies actually do: their products and services.
Its tech platform is hailed as the ‘new standard for managing impact.’ Upright’s AI-powered data engine maps the impact of 150,000 products based on more than 200 million scientific publications.
With the tool, investors may optimize their portfolios and draw direct impact profile comparisons from other companies and funds. Enterprise users can understand baselines by checking out data (displayed in an easily digestible format) from brands like Pfizer, Siemens, and Tesla, as well as the Fortune Global 500 and Nasdaq Helsinki.
How is Upright being used in Indonesia’s tech scene?
AC Ventures is a leading Southeast Asian venture capital firm investing in early-stage startups focused on Indonesia and ASEAN. The firm’s mission is to partner with and empower entrepreneurs with more than capital. It aims to be a generational partner to founders driving positive societal change and economic impact in Indonesia and beyond.
Lauren Blasco, the firm’s Head of ESG, is currently using Upright’s platform to measure the net impact of each startup that AC Ventures invests in. She is also putting together an aggregate net impact assessment of the portfolio at large.
According to her, this is likely to kick the door down for more foreign institutional investors looking to deploy capital into the local tech sector.
“The scores we get from Upright will put Indonesia’s startups on the best footing possible so that when more stringent ESG regulations do come into effect here, our portfolio will already be in the habit of collecting this data,” explained Lauren on a recent episode of Indonesia Digital Deconstructed.
She added, “Also relevant to global institutional investors, AC Ventures will soon publish Indonesia’s first sustainability report for the tech startup space in partnership with Boston Consulting Group.”