Creating the Wikipedia of Impact Investing (#33)

Structural Shifts with Bertrand GACON and Sylvain MASSOT, co-founders of Impaakt

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Today’s guests are reinventing the way the world measures how sustainable companies really are. Yes, we do have ESG data and CSR reporting, but those measure practices rather than impact, and describe policies rather than outcomes. In this episode, the co-founders of Impaakt — Bertrand Gacon and Sylvain Massot — are sitting down with host, Ben Robinson, to talk about how they are creating the Wikipedia of impact investing. Leveraging the collective intelligence of a large community of analysts to assess the social and environmental impact of large listed companies, they offer investors and the financial institutions the data they need to allocate capital to the companies who are having the most positive impact, and also to give everyday citizens the information they need to decide who they want to work for, who to buy from, who to advocate for. 

Full transcript

 

 

ESG is about finding whether the companies are doing things right. Impaakt is about finding whether companies are doing the right thing. And that’s very different.

[00:01:39.10] Ben: Okay, so, both of you, thank you so much for coming on the Structural Shifts podcast. I wanted to start by just talking about the ESG market sustainable investing in general. Is it to direct resources away from potentially harmful industries, those that are socially environmentally harmful? Or is it about getting a better return on investment because you’re investing in things that are sustainable?

[00:02:05.23] Bertrand: Well, actually, the answer should be both, actually. This is where it all started, but there have been many different layers and approaches when sustainable investment developed over time. It all started with the exclusion of the so-called negative screening — that was actually created more than a century ago — and the main proposal of that approach was really to align your values with your investment portfolio. So, getting rid of tobacco, weapons, alcohol. It was mainly a faith-based organization that started with that. And for many, many decades, it remained something very basic in terms of how sophisticated these approaches were. And then, at the beginning of the 1980s, it turned into something more advanced, where we replaced the exclusion approach by positive screening. So, instead of getting rid of the bad guys, the idea was to start trying to measure how good and responsible were the good guys, and this is where the ESG score started to come into place. And, at that time, it was still about trying to invest more responsibly and more sustainably and it took another decade before we figured out that actually, we can have both performance — financial performance — and sustainable investments. And this is where also the impact investing appeared and went on top of those previous approaches that I’ve just described, where the idea is really to identify companies that are doing good and bringing positive impact to the world and society and the planet, while, at the same time, making sure you can make profit out of that.

[00:03:49.03] Ben: In other words, you don’t have to sacrifice returns if you want to do the right thing. Is it just sort of, you know, pressure from institutional investors and retail investors that’s driving this market, or are there other forces — regulatory or any other drivers?

[00:04:07.05] Bertrand: Well, it’s a combination of many things. In the beginning, it was really more few private investors wanting to advance in that direction. But then, once some track record has been established, investors wanted to follow through and this is now very much driven by consumer demand, possibly due to the generation shift that we saw when the so-called famous millennials that are looking for, well, this kind of alignment, but also because the regulators are following through. And we saw very recently, the EU Taxonomy, that is a whole set of regulation that is trying to establish some common language and common ground to define what sustainable investing is all about. And this, in turn, is further accelerating the movement in the financial industry, because the pressure is just coming in from all places at the same time. But I have to say, what really has been the biggest accelerator in the last three years, really has been financial performance. When bankers started to realize that the performance of portfolios actually was better when you invest according to ESG standard than not, then of course, this has led to a whole shift in the financial industry.

[00:05:26.18] Ben: Sylvain, I read that 2019 was another record year for ESG funds or inflows into ESG funds. How big is ESG investing today? In absolute terms, and also as a share?

I just came across a graph showing that the inflows in the ESG and sustainable investment strategies are almost twice as much as the inflows in more traditional strategies since the beginning of the COVID crisis.

[00:05:44.26] Sylvain: Sure, and then you have to realize that the definition of ESG is actually quite loose. So, by that, we are talking about everything starting from exclusion strategies that we were referring to — best in class — and all other legislative impacts. that our best estimates, although the data stopped to give each day is that it’s probably about 30 trillion US dollars worth of assets that have some kind of ESG strategy attached to it. So, if you relate that to this total size of the asset management market, which is about 80–90 trillions, about one-third of the total market is now exposed to ESG.

[00:06:26.21] Ben: And Bertrand just mentioned that the performance has been better than other non-ESG funds. Do you have statistics on that, as well?

[00:06:39.01] Sylvain: I think the jury is still a bit out whether you are generating constantly better return from your first few years. I mean, they’ve been factors like you know, excluding some sectors, the energy sector typically, which has been helping with performance. But what we can say for sure is it’s not a detractor of performance, which was the accusation that we had back a few years ago that by investing ESG, you were sacrificing returns.

[00:07:08.03] Sylvain: You also mentioned that the year 2015 has been an important year, because this is the year where the sustainable development goals were achieved by the United Nation, also the year of the Paris agreement, and it’s also the year of the Dieselgate from Volkswagen. And all those three events coming together have led to kind of a wake-up call in the financial industry, and some players started to remove from their portfolios those high ESG risks companies, which in turn might have also explained part of the movement that we saw, and therefore, the increased performance that happened in the next few years.

[00:07:47.13] Ben: So are we able to trace to 2015 a very big jump in ESG interest in influx?

[00:07:54.20] Sylvain: I think it has been prophesied. I mean, it’s not just like it happened all of a sudden, with people waking up in the morning and switching all of their portfolios. But part of the growth of the industry is to be able also to deal with what we call integration. So it’s not only new funds being created and raising assets, is also all the strategies being transforming to green strategies or sustainable strategies, which means that part of the assets, you know, that we had before, all of a sudden became ESG sustainable assets which also explains how we could go so quickly into trillions and trillions of dollars being invested.

we see a huge wave of transformation in the financial industry — and what used to be a niche only five years ago, is now becoming completely mainstream. So, you will struggle finding any major bank in the world not doing sustainable investment today.

[00:08:33.02] Ben: Do you think COVID-19 is also going to act as a driver for this market?

[00:08:37.28] Sylvain: Well, the first data that we saw, yes, is pushing into that direction. I just came across a graph showing that the inflows in the ESG and sustainable investment strategies are almost twice as much as the inflows in more traditional strategies since the beginning of the COVID crisis. I’m not sure there is a direct relationship to that. Maybe this would have happened anyway, with or without the COVID, but for sure, it has not been slowing down the process. And as I was mentioning, now, the performance is a topic that is no longer a reason not to go into investment, into sustainable investment. Then we see a huge wave of transformation in the financial industry — and what used to be a niche only five years ago, is now becoming completely mainstream. So, you will struggle finding any major bank in the world not doing sustainable investment today.

[00:09:31.04] Ben: That was going to be my next question, actually, which is, you know, if sustainable investing is kind of, you know, is doing the right thing and performance doesn’t suffer, we do the right thing, then, you know, others can only hold us — there’s still banks or fund managers that don’t offer ESG funds and indexes and ETFs.

[00:09:52.05] Bertrand: Yeah, of course, you find, you know, some boutiques or specialized asset managers that have very specific strategies where ESG integration is not so easy, or maybe their clients are not so interested into that. So, you see funded too but, you know, that was exactly the reverse six or seven years ago — you would only find a few companies that were really doing sustainable investment as their core offering. So now, of course, if you look at the details on that, you might find very different realities and, you know, behind the communication and marketing strategy of those different asset managers, how deep and how serious they are in the integration of ESG, then you’ll find very different situations.

[00:10:40.02] Sylvain: Yeah, if the issue is about potential brainwashing because it is not fashionable and then a lot of these assets have only a very tiny overlay of ESG attached to them.

[00:10:54.00] Bertrand: And it’s very easy to kind of green your agenda, you know, just by pretending you integrate some ESG environmental in this appropriate era. What does it mean in practice? How much your investment decision is really being affected by those criteria. Is this something you just use to slightly inform your research or is it something that triggers divestment or investment decisions, right? And this whole level of details is really why you can tell the difference between the ones that are doing it seriously and the ones that are just doing it because it’s become fashionable, as Sylvain was saying.

[00:11:28.26] Ben: Do you believe that this really makes a difference to the green agenda as compared to, you know, technology change or government action? Are we really moving the needle with ESG investing?

[00:11:39.27] Bertrand: The answer is probably yes and no. And we can see companies that have made a lot of progress when it comes to adapting their practices in terms of their processes to become more sustainable in many industries, actually. Now, all these good changes that happened — and I have to say, many companies really embraced the change have done some progress, and have made some progress in terms of becoming more sustainable in their practices, but where we are really missing the picture is that the ESG data is only about practices and it has not forced the financial industry so far to really rethink asset allocation or sector allocation, right? Because it’s being more or less agnostic in terms of what is your core business. But it does say that if you want to pick a carmaker, it will tell you which of those carmakers is more sustainable than another one, but it does not tell you whether it’s better to invest in cars than it is to invest in bikes or whether it’s better to invest in old energy, rather than to invest in renewable energy, right? It doesn’t tell you that. And this is where we probably missed a big part, a big chunk of the need we have to transform the economy in a much deeper way, by really using impact measurement, and not just ESG measurements to make informed decisions.

[00:12:57.09] Ben: Sylvain, is there anything you want to say? Because I think we’re getting into the next topic, which is, you know, the problems of the way that we do ESG calculations today, and ranking.

now is really the time to go one step further, beyond ESG. And the financial industry has a very strong responsibility in triggering that change because there is nobody than the managers and CEOs listen more to than their shareholders

[00:13:08.12] Sylvain: I guess, we look at it also from the pool of assets we which are reliable. There’s no denying that, you know, asset managers can exert some pressure on their companies, there is no denying that these large companies manage the biggest investments, you know, compared with the smaller companies. And I think with ESG we have an example like, you know, back 10–15 years ago, where governance was not necessarily very much on the agenda of the people and companies, and now the ESG governance becomes basically mainstream. So, I think it really matters to have these ESG strategies to make the world change.

[00:13:50.14] Ben: Companies care because it affects managers’ compensation, and so, they want to be ranked well, and therefore that affects the way that they invest or the kind of investments they make. So that’s how it makes a difference today through compensation?

[00:14:09.08] Sylvain: Yeah, through regulation. I mean, through competition as well. You know, there’s nothing that a manager hates more than just to see their direct competitor having a better ranking or a better sustainably ranking than they do. So, there’s a number of drivers there and I think all of that has created a good momentum in the market. We now really need to go beyond ESG because for all the good thing that ESG has brought, we are still not moving, again, the transformation of the economy at a pace that is the one we need to address the many challenges that we have and this is more than time now to go beyond ESG. It was a good way to start that, it has already led to some good momentum, good changes. I think, you know, most managers are really keen to see their rating improving over time. But now it’s really time to go one step further and the financial industry has a very strong responsibility in triggering that change because there is nobody other that the managers and CEOs listen more than their shareholders, just because of the compensation that you mentioned.

[00:15:16.04] Ben: If we really get down to the first principles, what is the issue with the way that ESG rankings are calculated today?

[00:15:27.27] Sylvain: It’s really looking at the practices — you know, whether a company has good policies in place — but it’s not going to judge whether the product and services of that company are having a positive or a negative impact on the planet and society. So, I’ll just give you one very simple example, which is an example which we’ve been exposed to, in our former life as a professional in finance. If you look at the energy sector, if you want to take to the company with the best ESG rating within the energy sector, it happens to be Repsol nothing against Repsol. I mean, it’s a very well-managed company and it’s got very good policies in place, it’s very transparent about what it does, about the reporting of their emission and so on. At the end of the day, it’s a company which is producing fossil fuel, which has a very big carbon footprint. If you take a company typically in the renewable energy sector, a smaller company, I mean, the footprint is obviously much better, but these companies do not necessarily have the same policies in place, they do not communicate as well as Repsol. So you get in front of the client, and you tell them, “You know, I selected the best company in the energy sector, so you should be happy to see that it is Repsol. It just doesn’t work if you really want to understand whether this company has a positive or negative impact on the planet.

[00:16:54.05] Ben: So even though renewable energy company scores worse than…

Sylvain: Much worse, but again, there’s nothing wrong with what the traditional ESG provider is telling me because they’re only interested in measuring whether this is a good company with good practices, good policies, and doesn’t judge the impact.

[00:17:14.12] Ben: And why has the industry focused on procedures and not impact? Is it just because it’s very easy to objectively judge procedures, but it’s hard to objectively judge impact? Is that the reason?

A pure big data approach will not enable you to necessarily understand the impact of a company, […] we still need the human brain, but one human brain is not sufficient to measure all the different aspects of impacts of a given company. So rather than just going for either an expert-model or a big data model, the most interesting approach is to use collective intelligence.

[00:17:29.04] Bertrand: I don’t think so. I think the main reason is that it was the demand at the time. ESG started 20 years ago, and 20 years ago, the idea was to say, “Okay, a company is no longer just a company that is making profit. You know, we should also care about responsibility.” And so, it was more of a question about how responsible is that company in how they drive their business, how they run their operation. So, the question was, you know, trying to find out whether those guys do things right. And this is how ESG started. So you get interested in what are your policies, you make sure you treat your employees right, or you make sure you control your supply chain, and reduce your environmental pollution. But it’s just about how responsible you are, not what is your global impact on the world and society, right? And those are two different questions. And again, at that time, we were happy with the answer to the first one, but the time has come now to move to the next one. And the time has come to go… You know, ESG is about finding whether the companies are doing things right. Impaakt is about finding whether companies are doing the right thing. And that’s very different.

[00:18:35.25] Sylvain: But let’s face it! It is also true that it is much easier to assess the practices of companies than the impact of companies which have been huge for multi-facet products operating in many different countries. It’s much easier to send a questionnaire to a company to say, “Are you having the right policy there?” than to making the full assessment of the portfolio.

[00:18:58.01] Ben: Because I guess it’s a question of both data that exists, right? So, what is the carbon footprint of the company but also how do you judge, for example, you know, pumping effluents into the river versus pumping carbon into the atmosphere? How do you make value judgments about these different impacts?

[00:19:16.29] Sylvain: Yeah, you’re touching on some of the flaws of the existing ESG methodology. The first one is that, of course, if you only are interested in practices, the best thing you have to do is to ask the company, right? So, a large part of the information is just coming from the companies. And Sylvain was right to mention that this is done through questionnaires sent to companies and companies answer to this questionnaire and this is how you calculate your ESG scores. Now, the impact, you know, is much broader and the company might not be the best organization when it comes to answering what is the global impact that you have on the planet and society. Just take the example of, I don’t know, of any tech company like Facebook, right? Facebook has much impact on the world in terms of democracy, privacy, you know, access to information, fake news. I mean, we saw many of these issues, some of them, you know, being very important in terms of scale that they can have, and the impact they can have on the world. Well, I’m not sure that, you know, Mark Zuckerberg is the best person to ask when it comes to measuring the diversity of these impacts. So, we need to have a different approach that can be a lot more open, that can look into different sources, and not just the company, and that can really look at the impacts and not just practices. And this really was the frustration that we had, with Sylvain, when we used those data in the financial industry because we were also using these ESG data, we always got frustrated to the fact that they were not measuring what matters, and they were not getting the information where it was the most important to do so.

[00:20:51.21] Ben: A lot of companies are now looking into this, right? So, a lot of companies are taking a big data approach to this. It is not a questionnaire approach, but a sort of big data approach to trying to calculate the broader impact of companies. Why is it that you are not pursuing the same approach? Why do you see that there is a gap for a different approach?

[00:21:19.15] Sylvain: I guess, to start with, you know, the problem with the impact measurement done by companies themselves, just to be clear, we’re talking here about large complex companies. It is kind of self-assessment, and doing self-assessment means that, you know, your VC has a lot of cherry-picking and these companies are going to report on what they are doing. If we take the framework of the Sustainable Development Goals, a lot of companies are now reporting what they’re doing on SDG. But then you end up with situations like Philip Morris saying that they have a positive impact on SDG 3, which is about health and wellbeing. And it’s just because, again, you know, they are cherry-picking. And the problem we have here, we’ve been talking about brainwashing, the SDGs are, you know, the set of 17 goals are different colors so now we’re talking about rainbow washing. If you really just ask the companies, again, they’re going to tell you what they’re doing well, but not what they are not doing so well, what the negative externalities from their business are.

[00:22:21.05] Ben: We now have almost like a framework that’s emerging, for us to start to be able to calculate impact, judging the broader impact of companies. So, why not just take a big data approach? Because this is the moment for you to tell us a bit more about Impaakt. You are taking a much, much more radical approach, which involves, you know, creating content yourselves, right? So, why take the approach that you’re taking, rather than just seek to leverage additional datasets and take some sort of big data approach?

[00:23:00.04] Sylvain: I guess the issue we have is that assessing the impact the company has, according to one SDG, it’s not something which can just be measured in quantitative terms. It is a qualitative assessment also to do, above that. There’s also a lack of data. As I said earlier, a lot of the data come from the companies themselves, so you have to dig to get to the data, and you have to analyze this data. So, a pure big data approach will not enable you to necessarily understand the impact of a company, as on each of these SDGs, which is the reason why we thought, you know, we still need the human brain but one human brain is not sufficient to measure all the different aspects of impacts of a given company, and which is why we thought, you know, rather than just going for either an expert model or a big data model, what is probably the most interesting approach is to use collective intelligence.

[00:24:04.19] Ben: Okay, Bertrand, tell us a bit more about Impaakt and this idea and how you’re leveraging collective intelligence.

[00:24:14.01] Bertrand: Yeah, so the idea was, as I was mentioning, was, we wanted to create a system that was really looking at impact. We knew that it would be difficult, we knew it will be challenging, so we actually looked at big data as one of the first, you know, intuitive way of doing that. And we realized, for the reason that Sylvain just mentioned that was not the right way. I mean, we still use artificial intelligence to support the work of our analysts, but at the end of the day, we still need to have people that look at data, are able to put that into perspective, are able to also confront their views, building this collectively-built knowledge around the impact of companies. And the process works very much like a Wikipedia visual where it’s not one single person telling you about the impact of the company, but it’s many brains, you know, that each of them is having a little part of the information and we find a way of not only verifying that information because collective intelligence is also an open door to distortion and manipulation, so you have to get the quality control process very strict. But when this is done, if you find a way of gathering all that data and organizing it in a structured way to the depth of it, then you can really build a very strong and robust knowledge about the impact of companies. And this is the model that we started, actually, and we refined all the time, and now we are very confident about the value-added that it is really providing in comparison with any other solution that we can find on the market.

[00:25:47.20] Ben: Was Wikipedia the inspiration? And did you not think that that was just an absolutely massive, really ambitious mission, and you didn’t think that you might be entering into something that was a lot?

[00:26:07.22] Sylvain: Well, you know, if you want to get to the moon then you have to run for the stars, right? So it is huge. I mean, we were starting to concentrate on the 1500 largest companies of the world at one point in time and we want to cover many more, but even that number of companies is a huge challenge because each of them has many impacts in many different directions and we need to document each of them, write a report — a small report — on each company and making sure that, you know, the analysis that’s being returned is entirely vetted, that you fact check all the sources. So, it’s a lot of work at the end of the day. But the machinery that we’ve been able to create is working and we were discussing that before the podcast started, our main challenge is more to review all the analyses that are being published on the platform or submitted to the platform on a daily basis, to create the content itself. So yeah, it is working now and it is proving to be very disruptive and very interesting and the sky’s the limit in a way, because the bigger is the community and, of course, the more data we will process and the more research we will use. And so, as long as we keep this capacity to attract new people to onboard the journey, then there’s no reason to limit the growth capacity of this platform.

[00:27:46.11] Bertrand: I guess, you know, then, the one issue is that we were probably a bit naive initially thinking that, you know, collective intelligence, anyone would be able to contribute, and that the amalgamation of all this contribution would get us to a good result. The reality is a bit more complex. So, in order to get people to write on Impaakt, we need to train them, which is what we do through our certification. Then, in order to make sure that they write on the relevant topics, you have to really build a framework of the most important topics, whether positive or negative for each industry. And this is what also we’re working on today, to make sure that on top of what people can come up with, quite naturally, we make sure that all the important topics are addressed for each industry — for each company in each industry. And this is where artificial intelligence gets into the picture, right? This is where we use technology to basically ease the work of the contributors on the platform, give them access to research and sources, but also being able to identify all those topics that Sylvain just mentioned, and make sure that they’re properly covered by our analysts.

[00:28:57.16] Ben: Do you think it has been harder to try to build this from Geneva, just because here we don’t have a rich group of tech companies and people that you can turn to for advice and examples of successful companies that have done this before? Do you think it was harder both because there isn’t this ecosystem that you can tap into and also because maybe there isn’t the same level of tech talent?

[00:29:29.02] Bertrand: I have a different view on that. Actually, I think that Geneva was a chance for us. First of all, because I would not describe Impaakt as a tech company. Of course, we do have a tech platform, of course, we need to get tech right, but what we do is not rocket science in a sense that it doesn’t require the most advanced tech people in the world. We do have a data scientist and CTO which is a Ph.D. in data science from EPFL and, you know, for what we need, the kind of level that we have is really good enough. But in the other way around, I think probably the idea of Impaakt would not have been born somewhere else than in Geneva. I mean, we have a unique ecosystem where the financial center sits together with the United Nations and many international organizations. So, it’s a very small city in a way, where all the finance people can meet with the Impaakt people, in a way, in less than 15 minutes of public transportation. And this might have not happened if we were based in London or New York, because just impact investing was not as mature in those cities at that time that it was the case in Geneva.

[00:31:05.05] Sylvain: And frankly, for what we are doing, we feel that the value really lies in the community we’re already in. That’s what will make better success. And the community is neither in London, nor in New York, nor in Geneva. It’s got to be really, all over the world. And what we’ve been building with our certification webinars, we’re basically recruiting people from Mumbai, to any city in Central America, or in Africa.

[00:31:36.29] Ben: I guess I hadn’t really thought about it in those terms, which is actually, the unique propositions of Geneva might actually give it this boost, because obviously, I came more from the point of view of, you know, this is a platform company, you’ve got to solve this chicken and egg problem. And, you know, hundreds of companies have done this in the United States, very few of them have done it in Europe. I was thinking about it from that point of view but maybe that’s just kind of, you know, double click on that chicken and egg problem, on how you step by step overcome it. So, talk us through that. So, you mentioned certification, you mentioned trying to build the community. How difficult has it been? How many wrong steps along the way?

[00:32:19.05] Sylvain: Yeah, I guess, you know, the first assumption or the wrong assumption we made was that, you know, people will find it easy to write a short analysis, which is really the building block of our platform — 2000 characters analysis. The reality is that there are many pitfalls. Writing about impact, as I said, it’s not straightforward. People keep writing about the practices of the company because it’s easier, they keep writing about remediation, because it’s easier to find some information about how much a company has reduced their pollution, but they still remain a big polluter. So the first issue for us was, we cannot just rely on the layman, we need to train these people, which is why we do this certification, to make sure they know how to write a good analysis.

[00:33:07.02] Bertrand: And this has turned into being probably the best idea we had because not only it developed the skills of our community in terms of the level of quality we want to see in the content we produce, but is just turned up to be the number one engine for attracting new members, right? So, probably 50% if not more of all the visitors that we have on the platform, the users of the platform — not just those who contribute, but also those that are doing the ratings and the readings — most of them have heard about us through the certification program. And this is how we build the community, this is how we create the skills, this is how we engage on some of the community because the way the certification works, is not only just a webinar you attend to and you get the nice movie for one and a half hour — then you’ve got assignments to do so you get in touch with the instructors that are working at Impaakt, and you have this ongoing exchange and discussions with them, they will guide you in terms of improving your work. And this does create a very robust and a very engaging relationship with the community that we are leveraging today in terms of making sure not only the community increases in terms of size but in terms of how active that community is on the platform. You know, it took us some time before we figured out how to do that, but I think the certification has really been one of the major steps in terms of solving that issue. And if I look at the figures, you know, a quarter of all the people that come to the platform today are regular visitors which, for this kind of platform, is a very important number. If you look at the number for TripAdvisor, you know, some people go there once or twice a year, and the vast majority only go there and then never come back. For us, we have a situation where a quarter of the community are regular users and that’s a huge achievement and this is related to the certification program very much.

[00:35:10.20] Sylvain: But in fairness, the second issue we had, which was related to the first one is that once we have the certification, and we have people doing the certification, you’ve got to wonder why are they doing the certification? And a lot of people thought, “You know, it’s great, that’s actually something I can add to my CV.” So, we were investing a lot of time in training people to become good Impaakt analysis writers, and once they have the certification, they disappear. So it was sort of a never-ending investment. And what we then realized was that for people to carry on writing, then we give them incentives. And by starting to pay contributors once they are certified, we have been able to build a community of these regular contributors, who do not just come for the certification but want to continue afterward.

[00:36:06.10] Ben: So, people come to do the certification program because they’re interested in this space, and they want to make a difference, right? And then you keep them engaged by paying them for their contributions. So, the supply side is working quite well now because people are producing things to good-enough standards and they’re regularly contributing.

[00:36:26.15] Bertrand: And it should be, you know, snowballing, in the sense that, you know, you have the people that you have trained become regular contributors, and you keep training new people on top of that.

[00:36:36.18] Ben: Got it! Okay. Then, that’s going to be a bit of a bottleneck around the review process and ensuring consistent quality. But I guess that’s solvable. Right?

[00:36:48.00] Bertrand: Yes. And by different means. I mean, we just basically replicated the success that we had with the certification program but just did the same thing for the reviewing team, right? So we created a certification for reviewers. You first have to be a certified Impaakt analyst and then you can apply for the certified reviewer program. And then, we created a similar community. Of course, it is not driven out of the same kind of incentives and the same profile of people. But we just did a community of both external freelancers and internal staff managing that. And so, we have this capability that we need as well, on that front.

[00:37:24.13] Ben: What’s the profile for people that contribute to Impaakt, and the profile of the people that review?

[00:37:33.04] Sylvain: We have not necessarily checked lately, and it’s obviously fast evolving as our community is growing very fast but I would say, it’s neither the very young nor the very old, in the sense that we thought initially we would have a lot of students but maybe they don’t have the time, they should have the interest but they don’t have the time. It’s more like, I would say either a professional or a young professional in their 30s with an interest in sustainability — a lot of people are already more in sustainability, but not all of them. Some just wanted to discover about sustainability. And, you know, a profile, which is extremely International. As I said earlier, you know, we have people from Asia, we have people from Africa, we have people from Europe and North America, also South America.

Being a social enterprise doesn’t prevent you at the same time from making the profitability which will make you sustainable over the long term.

[00:38:25.04] Ben: And you said the interest is around sustainability. What does that mean? These are finance professionals or are much more general than that?

[00:38:34.16] Sylvain: It’s very diverse. We’ve got people from very different professional backgrounds. Some of them are engineers, some of them are teachers, some of them are students, but they come from very different backgrounds, both geographically and in terms of education, and in terms of professional experience. And this is actually what we want. We want to have that diversity because we know that the collective intelligence mechanism works at best when you’ve got that diversity in the community, and this is one of the joys, to realize that we were able to attract very good people. I have to say that the common alignment in sustainability is one of the key features we want to encourage even more. And this is also one of the lessons that we learned is that we see that the quality and the insightfulness of the analyses that are being submitted on the platform to be reviewed, tend to be much better or much higher when people are really sincerely passionate, genuinely passionate about sustainability, than it’s about just people that have been attracted because a financial reward and just want to get the money. And we can tell at the end of the day that is making a difference. And so, we also try to find ways of making sure we expand the community by looking for those, you know, sustainability-aligned type of profiles.

[00:40:00.22] Ben: Getting a certain critical mass of companies under coverage before you can attract the banks and other users onto the platform. How’s that going? How easy is it now to recruit them?

Sylvain: Do you mean clients?

Ben: Yes.

[00:40:17.23] Sylvain: Okay. So I think for that we have a roadmap and, you know, there’s a lot of chicken and egg here, where you need to find in sync but at the same time, you don’t have the content. And this is what we decided we would focus on first. Right now we assume that unless you have at least, you know, 1000 companies under coverage or companies which represent the bulk of the portfolio of the large asset managers, you’re not going to be on the map. So what we are doing is we are building content first, we are working together with some, what we call pilot clients to help us understand what are the fast-evolving needs of the financial community, because you know, we both exited the industry only a few years ago, but we realize that things are changing. And it’s only by the middle of next year when we feel that we have decent coverage on the 1000 companies that we will be really able to engage on a large scale with the asset management community.

[00:41:25.00] Ben: What do you think they’re going to do with the platform? Mostly, like a very silly question. So obviously, we hope that they would use the platform to make investment decisions. But do you think that they’ll build applications on the platform? Do you think that they’ll manage their products’ information on the platform? How do you think that this will go into practical use?

[00:41:52.11] Bertrand: Yeah, this is what we hope, otherwise we would have probably missed our mission because our mission is not just to be a good data, is to make sure that the financial community is using this data to make investment decisions, otherwise, we’re not changing the world, right? So, yes, we do hope that this is going to happen. And this is what is already happening with ESG data. We mentioned at the beginning of the podcast that not all of them are using the data in a way that is sufficiently deep, but many do. And the more it goes, and the more managers are using this data, just because as I was mentioning, it’s also driving performance. So they have that interest in making sure that they really use the data to make an investment decision. So, they’re already doing that today. But what is happening is that we see an increasing number of people within the community that is starting to realize, you know, the limits of ESG data that we have already detailed. This is not already the majority, because you have to remember that most of them just discovered those ESG data only one year or two years ago. So, the level of maturity is not always the same within the financial industry. But, you know, every single week now you start to see reports or articles about the need to go beyond ESG, the limits of ESG, and why we need to look at Impaakt. And so, as the industry becomes more sophisticated, what we believe is that those that are already using ESG data to inform their portfolio management practices, they will just use Impaakt data to do the same thing.

[00:43:24.11] Ben: Do you believe there will be the same use cases or do you think that there will be different use cases? Do you believe it might go beyond finance?

[00:43:30.21] Bertrand: About the use case: the beauty about the Impaakt is that you can look at the overall scores, and then do some reporting on your portfolio, make some adjustment. But the way Impaakt is built, the platform is built in many different building blocks, which we can re-assemble in different ways. So, people may use it just to understand what is the score of the company they have in the portfolio, but they may be interested in one dimension. I’m maybe interested in gender equality, a specific topic of water, and that platform will enable them to understand other companies’ scores on this specific dimension, which I believe the existing ESG tools do not necessarily enable you to do at this stage.

[00:44:19.03] Sylvain: And you’re right. I mean, our initial focus was on the financial industry because this is also the industry we know more about, but we have companies that this data is of interest to and that brings value to many more stakeholders, you know, for consumers, for future employees who want to check about whether they want to work with that company, for governments who want to know whether they want to give out some family contract to this company or the other one. And you can even look a bit you know, from a broader perspective. You know, everything that is related to B2B activities, you know, any company that wants to engage with a business partner might be interested in knowing, you know, what is the company we’re going to work with or to work for, right? Think about the advertising business. I think the advertising companies are starting to be faced with increasing pressure about what kind of products you are actually advertising because, of course, you know, this has a huge impact on the consumption patterns and you have your share of responsibility as an advertising company promoting this product, or this business model or another one. And I think those companies just like the financial community, at one point in time, they’re going to start to be interested about, you know, should I really be taking that company as a client, and promoting, I don’t know, this new generation of electronic cigarettes? Is that something that I should be doing or not? But it’s very easy to tell when it comes to products that are notoriously toxic. It is not so easy when it comes to more complicated situations. I was mentioning the tech sector, for instance, it’s hard sometimes to realize all the impact that these products might have on society and the planet. And as the CEO of an advertising company, I’d probably want to know.

[00:46:17.20] Sylvain: And if I may add, you know, one type of focus additional client, which we do not necessarily mention, is the corporates themselves. We don’t mention them because we do not want to be dependent on our revenues from corporates who can then influence the score that we would have on the company, but quite clearly, these corporates will be interested in finding out why they are performing better or worse than their competitors. And again, the platform enables them to not just look at their overall score, but see on what dimension they are clearly not doing well. And if I may add, also, on the consumer, I think the consumer is definitely interested in. The problem there is that they are thinking in terms of brands, rather than corporates. So the one thing which we are thinking also to add at some point, you know, relate also to the analysis, not just to the corporate, but to specific brands in turn.

[00:47:19.13] Sylvain: Now, another way for us to achieve our mission is to make sure that the data we produce is being used by as many constituents as we can and, this is also why some of that information — the scores, for instance, or the basic research — is also made available for free on the platform to anyone because this is also how we believe we’re going to create that knowledge about the impact of a company. It’s also why the certification program is free. We want to give out those free to as many people as we want and we want to bring that knowledge in the hands of as many citizens as we can because we know that this is how we get the scale of change that we need to see the world.

[00:48:01.19] Ben: I can imagine going on to Amazon and being able to make a decision based on the environmental overall impact of the companies, of the brands that I would want to buy. But the question I wanted to ask you is that it’s obvious that if you get this right, you know, this is going to be a winner-takes-most like platform. And who you’re up against? Are there other competitors? Are there other companies that are trying to do this at the same time as you?

[00:48:28.21] Bertrand: Many of them! I mean, this is a booming industry. I mean, open the newspaper every day, and you hear about sustainability here and there. So everyone is interested in sustainability, everyone knows that measuring that is a complex issue, everyone knows there’s a market for that. So yeah, many competitors and I think the most serious ones actually are the established players — the same company that has created the ESG rating that now wants to go beyond. And these companies are not just sitting there, right? They know the limits of their model, and they try to find ways of improving their existing scoring to better answer the needs of the market. Now, we have the chance that those companies all face with the same issue about having their history scores that they have been selling to their clients and if they change radically their methodology then they have to explain to their client that the score they gave them or sold them a few months or a few years ago, they’re no longer valid, and then it creates a lot of problems in terms of backtesting and in terms of all the investment decisions that have been made based on those scores. All they have to gradually evolve those methodologies and then it would take some time before they can really have something that is impact-driven. Some of them are trying also to recreate a second offering, like, I’m maintaining my first series of scores based on the ESG but then I create new products based on impact. And here, again, it’s a bit complex for them to find the right marketing because they basically ask their clients to manage two different scoring systems, right? So, then most of those companies face the limits that we’ve already described around where the source of the information is coming from, the model, which is also very costly in terms of fixed cost. And there’s a number of issues with, obviously, the incumbent of the market, and why it is trying to get into that place.

[00:50:36.06] Bertrand: The other area of competition that we see is those using mainly the big data approach, as we mentioned already, and although we’ve done that — we’ve already determined — we don’t believe that this alone would be good enough to tackle the impact measurement. At one point in time, you need to make a call, you need to make a judgment, right? You can gather information about how many water sources Nestle has prioritized. But you know, who is going to make the call that water prioritization is more important than obesity, right? And which weight you should give to each of those topics into the calculation of the score of Nestle. This is where also we believe that collective intelligence has a lot to bring to the picture.

[00:51:28.27] Ben: And is anybody else taking a collective intelligence approach, that you’re aware of?

[00:51:32.29] Sylvain: To the best of our knowledge, not yet.

[00:51:35.09] Ben: Your approach clearly has very strong pursuits of it. The more contributors you get, the more the clients will be interested — banks and other corporates will be interested in using the data, and therefore, you know, the more contributors you’ll need to feed them. And so, you can see how this drives very, very strong side network effects. Do you think there are other network effects that you can achieve? You know, can you use the corporate example to contribute data or to enrich the data to make the value propositions stickier and better over time?

[00:52:09.21] Bertrand: Absolutely. So, we’re only starting to explore those new dimensions, those new accelerating effects. I think, in short term is, there’s a lot more around gamification that we’re seeing because we need also to better incentivize the people that have come to the platform, not just to write analyses, but to do ratings and just to do readings, right? So to increase this part of the community. The other snowball effect that we could trigger, possibly the one about having those corporates feeding themselves part of the information — not doing the rating themselves, of course, but you know, at the end of the day, we were saying that corporates are not the only ones that should be populating this kind of data, but they can be at least providing part of the data, and those are related directly to the impact of their processes and practices. And so, yeah, it could be a very good idea of asking those companies to write up the good part that they want to defend; it doesn’t change the fact that then it would be vetted and controlled and rated in the same process as the rest of the information.

[00:53:23.21] Sylvain: And to balance that, you know, we can also look at other constituencies. And typically, what we have in mind is NGOs with interests maybe in line with ours because of their advocacy or mission, they know a lot about companies and the topics of interest to them. So, really tap into these communities of members of NGOs, to get to know the balance to what we’re going to get from the corporate sector.

[00:53:52.05] Ben: Yours is a for-profit company. Do you think that that’s a problem or in some way might dilute the periods in admission? Or do you think that that kind of profit is essential to get the wheels turning properly?

[00:54:06.22] Bertrand: We’ve attended presentations from Wikipedia and heard the founder lamenting about the difficulty to raise money. I myself, have also venture foundations in the not-for-profit sector, and I think it’s a fact that it’s easier to raise money in the private sector. Our project is extremely ambitious. We realize that we will need many rounds of financing before being self-sufficient. And for that reason, we thought that, you know, for-profits was probably the best avenue. But we are a social enterprise. By that, we mean that we have a mission. The mission is really at the core of what we’re doing. Being a social enterprise doesn’t prevent you at the same time from making the profitability which will make you sustainable over the long term.

[00:54:55.05] Ben: You mentioned 2021 — I think is a key date to start bringing clients, buyers on the platform. What are the key milestones that you have coming up in terms of calibrating and judging the success of your mission?

[00:55:10.04] Sylvain: Our first milestone is really meet 2021. And this is the magic figure of, you know, 1000 companies, corporate. 1000 companies corporate, to give you an idea, that means, you know, having probably about 10 times more analyses per company — 10,000 — and it means having probably about 500,000 ratings on the platform.

[00:55:36.15] Ben: Did you say 1000 companies, 10,000 analyses. And that’s what you call investments. And then what’s next?

[00:55:45.01] Sylvain: The next step is that, you know, when an analysis is posted on the platform, the writer is going to give his own assessment of the impact of the company describing his analysis. But we don’t rely on one person. What we want is the community to read the analysis, and make a judgment, assess whether the impact is positive or negative, whether it’s big or small. And each of these contributions from a visitor to the platform who read the analysis, accords ratings. And, as I said, you know, we believe that you not only need many analyses for a company to form a view, but you need many people to read these analyses and form a judgment on whether the impact is positive or negative or whether it’s large or small.

[00:56:34.03] Ben: I can imagine many people listening to this will be rooting for your success, right? Because if this is truly a success, then this will change society in a profound and very positive way. So, if people want to get involved, if they want to undergo the certification process, if they want to become contributors, if they want to use the platform, what’s the best way of finding out more?

[00:57:02.17] Bertrand: www.impaakt.com. This is where you’ll find all the information. We make it easy for people to engage in the community. And, as Sylvain mentioned, we initially thought that, you know, it would be easy for anyone to write a short piece of analysis on one impact or one company. It is not the case. Not everybody is a contributor, not everybody is willing to spend a few hours, a few minutes writing up something and doing the research. But there’s many other ways you can contribute. You can just go and read the information. Just reading the information is already making a difference, because then you can use that information to decide, again, whether you want to work for that company, whether you want to invest in that company, whether you want to buy products from that company. The second very easy way is to do ratings. And to do rating, it requires you slightly more engagement, because you need to read the analysis and you need to decide, you know, based on what you’ve just read, whether the impact is bad or good, and large or small. But by doing those ratings on the platform, you also contribute to forging a collective evaluation of the impact of the company, and this is how we derive the scores. So those ratings are also very important today. And then, of course, the last step, which is the most engaging one, probably also in a way, the most rewarding one is to become a contributor. And this is very easy, in a way. This is where the certification program gets into the picture. You just register there. We do two trainings a day — two to three trainings a day, depending on the day. We now have between, 1500 to 2000 people registering to that webinar every single week, so we’re training many, many people on the art of impact analysis. If, after the training, you don’t want to keep on that, at least you’ve learned some skills, you can stop there, and it’s already mission accomplished as far as we’re concerned. But if you want to know how to use those skills and apply them and become one of those contributors to the platform, then you just start submitting your analyses, you will be reviewed and published and you make money in the process.

[00:59:04.21] Ben: Sylvain, Bertrand, first of all, congratulations on the work that you’re doing! Secondly, thank you so much for coming on the podcast!

Sylvain: Thanks for having us!

Bertrand: Thank you!

aperture | Digest

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