Expert Blog – July 3, 2023
'Good – far from perfect – but we are working on it and showing year-on-year progress '. That's how Dylan Perales, Sustainability Lead at StartGreen, summarizes our impact and ESG reporting journey. In this blog, Dylan shares his thoughts on the challenges he and his peers face with the introduction of the EU Sustainable Finance Action Plan (including the Sustainable Finance Disclosure Regulation and the EU Taxonomy).
More data points
The number of data points required increased significantly last year. To give you an idea, we currently ask every company in our portfolio to report on 40 impact and ESG related indicators. With over 100 companies in our portfolio that we actively monitor, this results in over 4,000 data points that need to be delivered, verified and consolidated. Some of these data points, such as 'greenhouse gas emissions' (scope 1/2/3), require many more underlying data points to be calculated.
Those who have done this before know that this is not an easy process. Certainly not in the context in which we operate: many of our portfolio companies are relatively young and small. Due to the size of these companies, data on this is often not publicly available or cannot be obtained from a data supplier, which is often the case with large listed companies.
In addition, the portfolio companies themselves often do not have the resources or the obligation to report on these indicators. Because indicators are generic, some are not relevant to our portfolio companies due to their small size and/or early stage of development. Our survey was therefore completed on a 'best effort basis'.
Complete and fully reliable reporting – currently required to publicly share the SFDR PAI statement at the entity level – seems too good to be true at this point. I am convinced that the industry will mature and that reporting on greenhouse gas emissions, for example, will eventually become as common as reporting on financial data. But that will take time. Reporting for the EU Taxonomy can also be challenging when you dive into the details. Substantiation of the “Do No Significant Harm” criteria, for example, requires a lot of data that our companies do not always have readily available.
I fully support the goal of the SFDR and the EU Taxonomy: to create transparency in sustainable finance and prevent greenwashing. I also understand that it is complex to design such regulations. It has already led to much more awareness and critical debate on sustainable and ESG-related topics among a wider group of investors, which is great. However, compliance also requires significant additional time from financial market participants and the organizations they fund; time that can sometimes be used in a more effective way.
I hope that authorities understand this challenge and focus on the key areas of concern as the regulation continues to evolve. Furthermore, I would like them to take into account proportionality – such as company size or phase. Finally, I hope that best-effort efforts are appreciated rather than punished. The latter entails the risk that many financial market participants do not report or report extremely conservatively.
Our new impact report
With these kinds of challenges, I strongly believe in just starting and optimizing during the journey. That is what we have been doing at StartGreen Capital for the past five years. And I'm proud of our new Impact Report. I want to thank our team, advisors and especially the portfolio companies for their support and the positive impact we are making together!
Read the whole report