Util (un)wrapped

30 Dec 2022 | 12 months of major milestones

View from the top

⚔️ Republicans are gearing up to get louder on ESG in 2023, warns Bloomberg. Their coordinated political attack on capital markets is without precedent, says UPenn professor Jill Fisch, but “big money behind the scenes” (Big Oil is a generous GOP supporter) means it’s not going away. ESG critics need to realise they’re locking horns with basic principles of supply and demand, says Fortune. Yes, regulators play a role, but the real tide comes from investors, consumers, and employees.

🏥 Despite setbacks, reports Reuters, green finance ends 2022 in good health. Despite setbacks, or because of them? Climatic extremes moved public opinion and government action, while the energy crisis turbocharged efforts to replace fossil fuels with renewable energy. For a record-breaking year in renewable infrastructure investment, thank the US IRA. Or don’t, if you’re an EU or UK official nervous about competition. Once again: Expect climate trade politics to dominate 2023.

🤝🏽 So too, index funds and ESG. Their compatibility is a really, really interesting conundrum on which we’ve touched before, notably this time last year. Following Vanguard’s defection from the Net-Zero Asset Managers Initiative and the recent spate of Article 9 downgrades, the latest warning sign comes courtesy of UK ESG rules. Passive providers worry the FCA is setting “unrealistic expectations” for what can be achieved via stewardship and engagement, reports Pensions & Investments.

🔮 Have a Happy New Year, and—because we’ve noticed there’s a huge gap in the market for 2023 predictions—keep an eye out for those in next week’s issue.

Util (un)wrapped

Last week, we reviewed the events that defined sustainable investing in 2022. Today, we take a look back at milestones closer to home.

This was a chaotic and catalytic year for sustainable investors. Ideological fragmentation—on everything from energy security to climate politics to ESG investing—poked holes in the rose-tinted, bull-run concept of “doing well by doing good,” if not of the concept of absolute “goodness,” period.

Emerging paradoxes between environmental, social, and economic objectives are uncomfortable, though not so uncomfortable as to drive progress off course. The long-term picture is more compelling than ever. Flying in the face of market and political headwinds, government and regulator action—a response to constituent and investor demand, itself a likely reaction to new climatic extremes and geopolitical tension—has, by year-end, made sustainability unstoppable.

Besides, as CEO Patrick Wood Uribe told Proactive Investors in August, “complexity and change are hallmarks of a sophisticated industry, not the undoing of one.” Far from a death knell, events such as the energy crisis “introduced an important and overdue debate about bundled ESG scores and rigid exclusionary lists.”

The concerns underlying (and customer demand driving) ESG are here to stay. How ESG is done, however, is changing.

Notwithstanding the challenges unfolding on the world stage, for Util, 2022 reinforced the values on which our mission rests: evidence-backed sustainability. In an ecosystem, network, or systems economy that amounts to more than the sum of its parts, impact is financial risk; thus company impact must be measured against a credible evidence base (rather than, say, unreliable disclosures); and—given that, in the real world, the vast majority of products, companies, and industries have myriad positive and negative externalities—those data will reveal a healthy dose of nuance.

Milestone months

If our inboxes are any indication, this is the best calendar week in which to reflect on the prior 12 months. For any startup moving very quickly (while trying to fix rather than break things), retrospection can feel indulgent. But this has been a big year for a team that has more than doubled, from 11 to 25, in just 12 months. Indulge us.

Our overarching product objective for 2022 was better transparency, which proved fitting for a year characterised by greenwash. In January, we launched—and invited investors, journalists, academics, and policymakers to interrogate—our dashboard. In addition to illuminating the impact of all listed companies, the Util Portal provides options to compare issuers, screen for those aligned to specific UN Sustainable Development Goals (SDGs), and generate portfolio reports.

Product upgrades arrived in June, when we responded to industry-wide concerns about ‘black-box’ conclusions with a feature that surfaces the rationale for company-to-SDG scores. In August, we published our second data-led report, ‘Impact Investing Leaders & Laggards’, which reveals the top-10 highest positive- and negative-contributing investment funds relative to each of the 17 SDGs—and why. Covered by the Financial Times and Bloomberg, it brings into focus three considerations we hope will inform any building or buying of sustainable funds in 2023.

The team’s achievements were recognised at Investment Week’s Sustainable Investment Awards 2022, where Util was awarded 'Best Sustainable Investment Research & Ratings Provider' and highly commended for 'Best Sustainable Thought Leadership Paper’ for its 2021 report ‘How SDG is ESG? Putting Sustainable Funds to the Util Test’. For that report, Util also took home ‘ESG Research of the Year, North America’ at Environmental Finance’s Sustainable Investment Awards 2022 (on the same day, incidentally, that CEO Patrick Wood Uribe was named a Top-25 Fintech CEO of 2022). Rounding out the year, Util featured in the ESG Fintech 100 list—in great company—as one of “the world’s 100 most innovative ESG tech companies that every financial institution needs to know about in 2022.”

In a difficult period for private as for public markets, we were delighted to raise two multi-million-dollar investment rounds led by US investor Eldridge, with participation from Oxford Science Enterprises. New investors in our recent $6M raise included the Luxembourg Stock Exchange (LuxSE) and the Chicago Board Options Exchange (CBOE). We’re excited to be collaborating with two globally recognised exchanges as we enter 2023.

“Util’s overarching objective is fully aligned with our exchange’s mission to contribute to the growth of sustainable finance and the [SDGs]. As we accelerate the climate transition, it is increasingly important to be able to map the social and environmental impact of companies. A growing number of investors are now seeking solid sources of sustainability data to evaluate the positive or negative SDG contributions of different companies.” Julie Becker, CEO, LuxSE

Util’s product suite is unique in the market, providing scientifically-based, objective and actionable data sets to market participants positioning around the [SDGs]. In our view, investors and traders will increasingly demand navigational tools such as Util’s to provide direction on their ESG strategies.” John Deters, Chief Strategy Officer, CBOE

Reminiscing over

Looking towards 2023, we anticipate asset managers will continue to feel the squeeze from client demand and complicated, even uncoordinated regulation. One upshot: The starker the difference between vanilla and premium sustainable strategies, the bigger the reward for fund providers who can get it right.

The value of evidence in the fog of unqualified opinion has never been more apparent. In anticipation, our team has been developing a pipeline of technical tools to arm clients in an environment that requires better discernment and transparency of fund providers.

If you’re planning to improve how you report on portfolio impact or to build thematic strategies in 2023, we’d love to hear from you. Get in touch or schedule a demo to find out more about how Util can support your organisation in the year ahead.