The Sustainability Group wants to be the first platform that actively allows companies to show how ‘doing good’ creates value and enables the finance sector to use it as a decision maker around value creation.
The Sustainability Group was co-founded by Mike Penrose and Alexandra Smith. Mike has held Executive and Chief Executive roles at Unicef UK, Action Contre La Faim, and Save the Children International. Mike has a proven track record supporting businesses designing and implementing sustainability strategies.
Alex has a background as a Commercial Executive in both professional sport and hospitality, looking at how sustainability and business can go hand in hand, and how sustainability can improve commercial outcomes.
Mike and Alex explain the vision for the business as it significantly expands its operations and develops a highly scalable platform for advising businesses, foundations, financial institutions and family offices on how to make sustainability and social purpose an integral part of their operational and investment approach.
“The philosophy behind our business is that real change will only happen when two conditions are met – when consumers demand it and when capital is conditional upon it. Then it doesn’t matter even if you are the most cynical business leader on earth; you are going to embrace sustainability because the people who buy your products or want your services, and the money you need to operate your business, require it. We also believe it will very soon be a legal requirement in many of the world’s major economies, and those businesses who get ahead of legislation now will reap the returns in the future.”
“Today’s consumers, especially younger consumers, care – they care where their shopping comes from and care what is in their pensions. It is because of this that all the big fund managers and investors now apply considerable conditionality to their allocations, and this trend is now trickling down to smaller funds.”
“Our analysis of the sustainability space highlighted three issues that have triggered an opportunity:
- Corporate social responsibility was dying because it didn’t challenge the status quo; organisations were outsourcing an obligation to be good to charities, in order to carry on being bad in their commercial practices. People have seen the dilemma there – and it doesn’t work anymore. In addition, no one was really helping organisations inculcate sustainability and social impact into core business – into their manufacturing process; their supply chain; how they operate; or how they allocate their funds. So, we saw an opportunity.”
- “There are a multitude of ESG measurements being used by the finance sector, but virtually all of them were invented by financiers and analysts. This means that they measure what is simple, not measure what we all value. They tend to look for easy-to-quantify indicators that try to prove that companies are not bad, rather than genuine indicators of what constitutes impact and change. Boohoo, with its AA MSCI rating and investment from 20 ESG Funds because of above-average labour standards (which were anything but), is a classic example of how measurements can mask the reality. It’s easy to measure whether you have a policy in place. Boohoo may have had a policy on fair wages and labour practices in place, but it did not measure or monitor whether it or its suppliers paid fair wages to all employees. ”
- “The conditionality of the large-scale funds and consumer demand means that we can now demonstrate that doing good makes you more profitable. That values create value. In addition, being a sustainable business makes you better employers, so you get better employees. A high salary is no longer enough. Younger employees want to know what your company stands for and what you are doing to confront the bigger problems in the world. ”
“We believe that there is a better way to measure corporate sustainability – that can be valued by investors, fund managers and the companies themselves.
We want to to democratise the process of building better businesses, making it accessible to all. Most existing sustainability programmes are either based on purely quantitative analysis, negative screening, or to put it bluntly, rather elitist groups that are inaccessible for most small to medium sized companies, such as many of the better known ‘certification schemes’ that exist today.
These certification schemes do measure the right things, but because of the prices they charge and the operational barriers they put in place, they are creating small exclusive clubs of companies that are already sustainable. They are not, in my view, helping most businesses on the journey to become sustainable. Helping startups and SMEs set out on the right footing, and not have to retrofit sustainability practices later, is the best way to ensure the economy grows in a way that works for the markets, and the planet. We wanted to make measuring sustainability accessible to everybody. We also want to closely align it with that capital journey that businesses embark on – from pre-seed to seed to series A – right the way up to IPO.”
Our product: measuring a company’s intent
“Our core product is a simple and easy to use platform that allows companies to measure both their existing sustainability and plot a pathway to becoming a better business, and we help them do it with support from an array of experts. Our platform also allows investors to see both the actions and the intent of potential and existing investments and monitor their progress. Allowing for real triple bottom line reporting and ensuring they have an evidence-based approach to sustainable investing. Investors can group their investments and see individual results and aggregated scores per fund or portfolio.
We also have an investment due diligence product which measures whether a company intends, from the outset, to be a sustainable values-driven organisation and helps inform investment decision making.”
“Our objective is to help companies demonstrate both their standing and intent to customers and investors, through a meaningful, comprehensive and dynamic measurement of their sustainability and social impact, and for investors to measure their progress towards becoming a better business in the same way they monitor other KPIs and metrics. We always found it confusing that whilst investors took into account financial projections when deciding on fund allocation, the approach they use to measuring sustainability can only ever point to an investees’ standing at a fixed point in time. Forecasting profit and purpose, then monitoring progress makes so much more sense.
We’ve priced our products to be competitive, so they are affordable for firms. We price on four scales starting at £180 a month for a micro startup, moving up to fee structures for small, medium, and large companies – and as you grow, we grow with you, and we know that working with us will help you grow.
Companies go through an assessment process that is as rigorous as any tool that exists today, but it measures much more intent and practical application, than just having policies in place or demanding impossibly complex measurements. We have five indices that a company is measured against: economic, social, climate, environment, and diversity and inclusion.
Within those five indices, we’ve distilled three-and-a-half thousand indicators (which were, in essence, all that existed out there from finance, to certification schemes across to the UN) down to 250. Those 250 indicators measure what it takes to be a good business.
One of our criticisms has always been that ESG is almost trying to make itself an asset class on its own. It shouldn’t be that way. It should be a process applicable to all asset classes. Our system works cross industry and cross asset class – for instance, you can compare pharmaceutical companies, oil companies, or tech companies in the same meaningful way.”
“Once a company has got its aggregated score across each index, it then has a roadmap that plots a pathway to greater sustainability. Based on these two factors, companies then get a weighted score. That weighted score allows them to go to markets and be measured against intent, as well as application.
We want to attract small companies to our process so we can help them grow. You won’t believe the number of times a day I have a company coming to me and saying “I looked at some of the other tools that exist and I’d love to apply them, but it costs a fortune and takes ages – and I’ll have to employ someone just to do it. I just can’t”. But it is not just with SME’s where the opportunity lies – we are also talking to multinationals, fund managers, investment firms and family offices.”
We have three goals. The short-term goal is to get the largest number of companies of any size going through a comparable and standardised process towards becoming sustainable and ethical. The medium-term goal is for that data to be really valued by the markets and by investors in a comparable way. And the third, long-term goal, is to have a comparable data set that is valued by ratings agencies because they will want to know the path that organisations took to become more valuable through sustainability from pre-seed to IPO.
With Vala’s backing, we now have the investment we need to bring to life our vision of what constitutes sustainability and social impact for business. We want to be the first platform that actively allows companies to show how ‘doing good’ creates value and enables the finance sector to use it as a decision maker around value creation. We have already helped many of our clients renegotiate hundreds of millions of pounds worth of debt or gain large levels of investment at a reduced cost because of the sustainability and social impact programmes that they were implementing.”