From Goldman Sachs to Excel Hell: Measuring Sustainability That ESG Ratings Miss | Samantha Duncan, Net Purpose (#136)

Speaker A: Up m Next on the SRI 360 podcast.

Speaker B: ESG does not equal sustainability. I loved the power of capitalism and the capital allocation. I loved the real world impact. And then I just sat there wondering, does this model really capture everything that's going on here? The women felt like a bit disrespected, to be honest. They were like, I can pay it back. What do you mean? I get it. If I have to pay 1% per month, I'll pay it back in one month. So I don't have to pay 3% in three months. Months. I'll do that. 84% of a portfolio is derived from resources that won't be here in 10 years. About 70% of global capital was signed up to the UN Principles for Responsible Investment with a commitment to invest more sustainably. How is that ever going to happen if all of us are sitting here manually? Punching numbers from PDFs into Excel files

Speaker A: unlock the potential of your investments to improve the world and make high performance returns. Welcome to Sustainable and Responsible Investing360. My name is Scott Arnall and each week I sit down with a world class investor to uncover their secrets of, uh, profitable ESG impact and socially responsible investing. Find out more@sri360.com In 2009, my guest today walked away from one of the most prestigious jobs in finance, working as an investment banker at Goldman Sachs. And she moved to a small town in northern Peru to lend money to women $20 at a time. What she learned there, that the women felt disrespected by charity and only began to thrive when the money came with commercial terms, became the thread that runs through everything she's built since then. Today I'm speaking with Samantha Duncan, founder and CEO of NetP, uh, which is an impact measurement platform that today supports clients managing about $20 trillion of AUM. Um. Before founding Netpurpose, Sam spent six years at Leapfrog Investments, ultimately as the head of Impact, helping build some of the earliest frameworks for measuring social and financial performance side by side across a portfolio reaching more than 160 million people in 33 countries. But it was the work behind that measurement, what she calls Excel hell, where her team was spending 95% of their time hand keying numbers out of PDFs that convinced her something was fundamentally missing. The infrastructure that exists for financial data like your Bloombergs, your factsets, simply didn't exist for measuring a company's impact on the world. In this conversation, we get into why she believes ESG does not equal sustainability and why a portfolio's exposure to resources that may not exist in a decade is a serious financial problem, not just a moral one, and what it would actually take to measure impact as rigorously as we measure profit. We also talk about her path from Goldman to Peru to Johns Hopkins to leapfrog, the recent acquisition that brought four of the world's largest asset owners onto her platform, and why she's convinced that in time, every investor will be a sustainable investor, just as every investor today is a financial one. And now, please meet Samantha Duncan. Thank you first and foremost for being a part of this community. But it's driving me crazy that over 83% of you that listen to or watch this show regularly haven't yet subscribed to this show. So could I ask you for a favor before we start today? If you like the show and if you like what we do here and you want to support us, the free and simple way that you can do just that is by hitting the subscribe button or following us on your podcast app. It helps this channel more than you know. Thank you and enjoy this episode. Sam, um, it's great to finally meet you. Thanks for coming on the show today.

Speaker B: Thanks so much for having me. I'm really excited to be here.

Speaker A: Sam, you co founded the company called netpurpose and you've described netpurpose as a tool for my former self. But before we discuss your company and get into all that, I want to understand what the former self was. So help me picture it. I, uh, believe you grew up in Australia in what you've called the stunning wilderness. Take me back. Where exactly did you grow up? What did your family look like? And what did that landscape actually feel like to a kid living inside of it?

Speaker B: Oh, I love this question to kick us off. Makes me feel a warm and fuzzy. I did grow up in Australia. I born in Western Australia, just south of Perth and then I moved to the east coast with my family and my dad was actually an electrical engineer. So he worked in the mines in Western Australia and then moved into manufacturing in Albury Wodonga of all places, which is between Sydney and Melbourne in the countryside of country Victoria. And he was manufacturing first pet food, but then chocolate bars. So at some point in my childhood, life changed dramatically for the better where my entire fridge was stocked with chocolate 24 7.

Speaker A: Yeah, but you had to get rid of the dog.

Speaker B: Yeah, exactly, exactly. And my mom is and was an entrepreneur so she started her travel business in Australia and before that had multiple entrepreneurial chapters as in shoe sales, as a dental assistant but then, um, like doing her own thing type thing. So I think the combination of that was influential for me. But also the setting in Australia is outside nature, bare feet, in soil all the time. And I think that outdoors just as just the strongest imprint on me as a human. And even today when I sit here in London, I just like, can't wait to get outside and, uh, be in the sunshine and feel the earth, uh, that we live on.

Speaker A: I imagine you're waiting quite a lot for the sunshine.

Speaker B: Yes, I'm actually heading to Australia, um, tomorrow, so I'm very excited to get back down under.

Speaker A: You described it as wilderness. Was it quite small, rural area that you were living in then?

Speaker B: Ah, we lived in, uh, country Victoria. In the context of London, it's rural. In the context of Australia, it's normal. But yes, we lived on a property with multiple acres with horses and goats and sheep. So it was definitely growing up with in the surrounds. And we lived next to a large forest for most of my kind of high school years. Uh, so it did feel a bit in the wilderness.

Speaker A: You mentioned your mother is British. You've also described yourself as part of the diaspora. Australian wilderness on one side and a European cultural lens on the other. How did that shape the way you see things?

Speaker B: Yeah, I think I always had an international perspective. My mum, yes, is British, my dad's Australian, but he'd also traveled significantly and that's where they found their match in travel. And I was lucky because my parents took me everywhere growing up. So we would go on an international trip every year. And I, I, uh, did develop a passion for and appreciation for the wider world very early. And I think that definitely led me to be interested in contributing to something significant on a global scale versus focusing mostly on the local scale that we lived in Australia.

Speaker A: Then around 2003, you're off to University of Queensland to study for Bachelor of Commerce in Finance and Accounting. So why UQ and why business commerce and what were you actually thinking when you made those decisions?

Speaker B: Yeah, it's a good question. And for anyone listening, it took me a while to get there to that point because I didn't really know what I wanted to do growing up. And I think because of that international context, a lot of the opportunities presented when you're at high school and transitioning to university feel more local. I studied hard and I got good grades. And for people that get good grades, the typical next step into university is to become a doctor, physiotherapist, or something technical like electrical engineering. I actually started in Those disciplines. I did six months in engineering and then I did six months in physiotherapy. So ultimately I took my love of numbers, I was quite quantitative and my love of the real world and found that business finance and accounting felt like it was a very good match for that. Accounting obviously is numerical, but accounting for companies like companies build the world. So it just felt like I was found my match in that discipline where you could understand how companies were built and the products and services they provided. Real humans. But think about that quantitatively.

Speaker A: So then you graduate from UQ and then you do a brief stint at uh, PwC and I bet you they beat that love of accounting idea out of you.

Speaker B: Yes, well actually I worked at PwC during my degree and I did not, uh, join the auditing team. I was lucky to be working on the internal audit team where we'd go around. My first job at PwC was going to cement factories and figuring out whether they were actually cement factories was really quite. I think most of the people on the cement plant, when I turned up, they were like, who is this? That was a chapter. And then yes, when I finished university I decided to not continue at PwC and to move into investment banking.

Speaker A: That's when you landed at uh, Goldman Sachs in Sydney and doing M and A in healthcare because that's around 2007. So how did that happen?

Speaker B: I applied through the analyst process at the point, which was quite rigorous. Landed a job again. I think it was this marriage of quantitative rigor with real world impact.

Speaker A: Mhm.

Speaker B: Because the healthcare space in particular, if you look at the index of Australia, like the ASX 200 or 300, most of the largest companies in Australia are healthcare or mining energy companies. And so the healthcare space just felt like a very social space to me. But we were applying a very quantitative financial lens to it at Goldman. I think that combination of real world and numbers and finance really inspired me. So it felt like a good first starting point out of university.

Speaker A: You've described that as a relentless daily focus on earnings. Accretion, dilution, accretion, dilution, rinse, repeat. And then anyone as old as me knows that 2007 is right before the global financial crisis hits. And that hits while you're sitting inside the machine. So what did that feel like from the inside?

Speaker B: Yes, that was wild, I have to say. I mean, so my first day at Goldman Sachs, I got a call from my boss and he said, we're not going to the office today, we've rented a yacht, we're going out to celebrate a deal we just signed last week. I was like, okay, where should I meet you on this yacht? Sounds wild. It was the peak of spending and celebration and fees. And it, uh, just felt like this peak of capitalism in a way. Obviously in the first couple of days I was just like taking it all in. But after a couple of years, I felt very inspired by the power of this bank that was literally advising the largest multinational companies in Australia, but also in the world, on very strategic consolidations of businesses that had a very significant impact on the actual world. For example, the deals that we were doing in healthcare were changing the cost of pathology for my parents. They were shutting down medical centers in rural areas. We had a big strategic discussion on the diagnostic imaging, for example, because it trades at lower multiples. Obviously it's quite important for diagnostic care. So there's such a real world space. Yet all the analysis we did was always earnings per share, earnings per share, earnings per share. Like, what do shareholders get out of this next week, let alone like in five years? It was a real tension for me. I loved the power of capitalism and the capital allocation. I loved the real world impact. And then I just sat there wondering, does this model really capture everything that's going on here and all the money we're spending on these yachts and dinners and lavish things? Does that feel like. Right. I don't know.

Speaker A: So, uh, your clients were healthcare CEOs. They're talking about patient outcomes. You were completely focused on eps. So was there a moment when that it stopped being an interesting observation and really started to be something that you couldn't live with?

Speaker B: Yes, there was. There were a number of moments. And I think what was also happening in the background, as you said, I joined in 2007, so I had about a year before the crash, early 2008, there was a lot going on with regards to markets. There's a lot going on inside the bank in terms of international colleagues getting let go. There was also a lot going on, interestingly, in the social space. Muhammad Yunus had just won the Nobel Prize for microfinance. His book Portfolios of the Poor captivated me. I thought, wow, how interesting. Like, he developed a, uh, commercial proposition that also had significant social benefit for the women who were taking his loans and kind of redefined how we think about quality lending. And that inspired me. And so the combination of all of these things led me, after a couple of years, to declare that I wanted to pursue a career in social finance, which I didn't know what that meant at the time. That's when I decided to step out of Goulburn.

Speaker A: That was around 2009. So I guess a year after the great financial, uh, recession hit. You quit Goldman. That couldn't have been super easy. It's one of the most prestigious jobs for a person. The age you were at wasn't a great economy. So you're kind of stepping out of the boat at a time when was a great environment and somehow you move to Trujillo, Peru and you become the head of microfinance and economic development at a children's NGO called Skip. And I'm sure that that just, uh, stands for something. Tell me about this whole transition. What were you feeling? What happened when you went there?

Speaker B: So I did resign. I was fortunate at Goldman to be working on some of the most significant transactions for the bank at the time. So I had a strong relationship with the head of investment banking and my boss was a superstar and I didn't want to let the team down. But I also knew that I had to figure something else out. So I called people up and said, I'm resigning and I'm going to pursue a career in microfinance. And all of them were like, what is that? And I said, I don't really know, but I'll keep you posted. I also felt that given the international context in which I wanted to work, I'd grown up in Australia, English speaking. I felt I really needed to understand more of the world. I did decide to move to Peru of all places, and learn Spanish. I didn't know Spanish at the time and figure out what was this concept of microfinance. Because actually Latin America is. Even though Muhammad Yunus um, started his projects in Bangladesh, Latin America is actually the earliest examples of microfinance. And you've got these successes in Banco Compatamos and others in Mexico. I landed in Peru and at an organization called Supporting Kids in Peru, of all things.

Speaker A: That's the Skip.

Speaker B: That's the Skip. Exactly. I didn't really know what I was doing, to be honest. This amazing organization had this program alongside the education they did for kids, for the, uh, mothers of the children to build their businesses. It was starting off, um, but it wasn't really sustainable and it wasn't really working. And I landed there and said, I've just resigned from my role at Goldman Sachs. Like, can I help? And they were like, oh my gosh, yes, you can step in and run this. And I was like, I don't know anything about this at all. I don't know if I'm Capable of it, but I will try. So I ended up just spending a year and a half, actually with women in this very small suburb of Trujillo called El Povenir. Interestingly, that means the future. And, um, these women were very inspiring, to be honest. They'd all started their own business that were all very small scale. Selling treats alongside the school or selling hats or tayettas like build, like a knitting certain things in Peru. And I just had an opportunity to sit with them and sit in their homes and understand, like, what they needed and tried to build a financial tool that could support them in graduating from where they were today to formal lending in Peru. What was interesting about it is it wasn't working. Muhammad Yunus said that this was the best thing since sliced bread. And I thought, none of these women are actually repaying anything.

Speaker A: Did he actually know that organization?

Speaker B: No.

Speaker A: Uh, when you make the statement it wasn't working, you're talking about microfinance in general as opposed to that particular ngo.

Speaker B: Yes. This microcredit program in particular wasn't really working. It was lending money to women who were growing their businesses, but they weren't repaying anything. The organization itself had no idea why they were repaying. And so I tried to find out. And in a nutshell, the reason was that the lending mechanism was not commercial. The women understood that they'd been given some money. They knew they had to pay it back at some point, but they had no incentive to do so because the rate was a flat 5%, no term, just give it back when you can.

Speaker A: Okay.

Speaker B: So we converted it to a more commercial rate, simple 1% per month. If you pay back sooner, you don't have to pay as much. And people started rolling the door, paying back their loans, growing more.

Speaker A: Where was the funding coming from for this?

Speaker B: The Supporting Kids in Peru raised as a charity. It raised money in the UK and invested it in Peru. So it was a small allocation from the Endowment to support women. What I ended up doing was raising money from some of my Goulburn colleagues to fund the program further, and then also ended up stitching it to a local bank to help the women graduate from that program to the bank later for larger loans. But what was interesting to me is that it had been developed as part of a, uh, not for profit context. So the entire structure of the program was, let's give these women some money. They're too poor, let's not ask for it back yet. They can give it back when they can afford it. And what was interesting to me about that Approach is it was so kind and generous in intent, but the women felt like a bit disrespected, to be honest. They were like, I could pay it back. What do you mean? I get it. Like, if I have to pay 1% per month, I'll pay it back in one month. So I don't have to pay 3%. Three months. I'll do that. And it was just so empowering to switch it to commercial terms, which really gave me the kind of deep ground level understanding that, okay, there's an opportunity here, like commercial and social.

Speaker A: So when you left, uh, through heal, what was your takeaway? What did you believe about social finance? Ah, that you genuinely didn't believe.

Speaker B: When you arrived, it totally confirmed that social and commercial outcomes can go hand in hand. And in particular, given the not for profit approach didn't really work. When we switched it to a more commercial model, women felt empowered and we were getting returns and it just flipped. All of a sudden, everyone was repaying. It was growing. They were transitioning to the bank. I guess what stuck with me was, why didn't this happen in the first instance? Because there is an exclusion problem and I think there's unknown parts of the market that are just harder and different to serve. And when I started transitioning the women to the local banks, there was definitely like, some of the banks wouldn't even let them in the door. So there's definitely barriers to progress that need to be broken down. But also, I think my major takeaway was I am not Peruvian. I wasn't the right person to take that program forward. And I just felt like I could have a larger impact if I helped catalyze some of this knowledge in more parts of the world.

Speaker A: So after Peru, you go to John Hopkins School of Advanced International Studies to get an MA in International Economics and Development. Tell me, what was the idea you got out of this thing in Trujillo and then you decided, I need to go to school, I need to get more theory?

Speaker B: Yes, I did. I felt like, wow, there is something big here. I could help. But also, I don't know what. I don't know. There's an entire industry that's been developed to achieve economic development, for example, like the World bank, ifc, United Nations. And it doesn't seem like it's worked in all dimensions, even though there's lots of progress. Let me go learn about what has and hasn't worked. And that's why I went to Washington D.C. to study for a couple of years.

Speaker A: Well, that seems counterintuitive.

Speaker B: Yes, at the time Obama was Obama's m first chapter, which was wildly different.

Speaker A: I don't know. Too many people have gone to Washington D.C. to get the truth and actually left with it. Uh, so anyway, you got out of that and then you had a short run of consulting stints at uh, Technoserve and Grassroots Business Fund in India and a uh, Latin American mezzanine infrastructure fund called Cometh. So that's a lot of moves in a short period of time. I don't think they must have been random. So what were you searching for across all of that? What was the question you were trying to answer?

Speaker B: Yeah, they were actually all projects during my studies and uh, it's the same when I studied in Australia. I worked at PwC as well. I've always combined the academics with the practice in many ways. So I was studying in D.C. and I just thought I want to also understand how this applies in the real world. So I worked at all these organizations during the two years I was in dc. I just felt there's a lot of like there's a lot going on in this space. There's lots of organizations trying to achieve impact and do it in a commercial structure. I hadn't found in those chapters the right fit for me. It felt always either one or the other. It was like too nonprofit y or too commercial. And so that's what at the end led me to join Leapfrog Investments at the end of my studies at SAIS

Speaker A: and that's around 2012. And you joined as an investment officer covering Southeast Asia. So tell me what attracted you to leave Prague, how that move came about and um, what specifically drew you there.

Speaker B: I was really looking for a role in an organization that had a dual mandate to achieve top quartile financial returns and significant social impact. And I found that in Leapfrog, um, the founder, Andy Cooper really I think helped define the space of impact investing with more clarity than others had at the time. And he developed a fund structure in fund one that had the objective of achieving top cause our financial returns and reaching 25 million low income people with insurance. That specificity of the impact objective really convinced me that this was A ambitious, B measurable and C serious because they'd gone to the extent of making that so precise. So I had the opportunity to join Andy in Australia at the time and join as an investment officer looking at our investments in Southeast Asia.

Speaker A: And eventually he became the head of Impact. You know, so for anyone listening who doesn't know leapfrog, I've actually had Stuart Langdon on uh, a few years ago. Great chap. Helped me understand the thesis at the core of that firm. What problems were they actually trying to solve when you went there?

Speaker B: Yeah. So Leapfrog is an emerging market private equity investor for anyone that comes with a traditional lens. But the firm is established with the objective of reaching millions of low income people with access to to essential services. So the entire thesis is based on a strategy that sees these people as consumers, not as beneficiaries. And that by providing them with essential insurance and financial services, healthcare, that we can have a positive impact while achieving top quartile financial returns.

Speaker A: As your role as head of Impact, I mean Leapfrogs entirely impact. Right. It's a pure play impact firm. So was that more of a staff role?

Speaker B: Yes. So the head of impact role could also be called head of measurement. In essence I started on the investment team working to identify companies and create an investment case to invest in them. And the head of impact role I moved to which was designed to better measure social and financial performance in a holistic way and develop the measurement framework that Leapfrog developed which was called Firm at the time. It's not insignificant because even though the two dual objectives existed, the practice of embedding that in every decision across the firm and in getting the data into the management dashboards to enable us to make decisions on both social and financial terms needed to be done. And at the time the industry we didn't have really robust measurement standards so we helped build IRIS plus at the global impact investing. Also contributed to the development of B Lab and the gears and um, B assessment and other standards. Unpri wef like there's so many that developed at the time. So it was really a measurement role.

Speaker A: Well, spoiler alert. I think I know where we're going from here. So before we move on, I think your time at Leapfrog is really relevant to the audience and what of course what you're doing now. So I'd like to talk about a few specific deals because I think the stories are extraordinary and you know, um, maybe we could start with Express Life Ghana. Leapfrog took a majority stake around 2012 when they had 12,000 customers and then 18 months later 860,000 low income Ghanaians and then Prudential Plc buys it, which is their first African market entry. So tell me about that transaction and what drove that kind of growth.

Speaker B: Express Life was an interesting example because it is the first one, um, where we really did deep measurement work and we had paired with them a program where they could run a survey on their end consumers and understand whether they actually had access to insurance before what they did, what was their job, were they employed, did they have a business, they have kids. And that helped us measure the social impact of the access to services we were providing. I think at the time we found out that about 70% of the customers had actually never had insurance before. This was their first policy. At the same time, that survey helped the business understand their customers better. And so it's such a, um, lovely like measurement tool in a way. Definitely don't think that was the result. That was the only driver of the growth that we saw. But that combined with the business's product expansion, they moved, I think from traditional sales to mobile insurance sales. And in Ghana, the concept of micro insurance was taking off at a time, led to that growth. And yes, it was an exciting opportunity, I guess, for Prudential to come in and partner with the business after Leapfrog had identified it and made the investment.

Speaker A: One thing about Leapfrog that always stands out for me, they're one of the few that I'm aware of, they're very, very specific about the scale. They want to have impact and they want to have scale. They won't touch something if it doesn't affect X number of people and then they attempt to measure it and it's much more front and center the amount of impact that they want to have before they'll even go into a deal. Is that fair to say?

Speaker B: Absolutely, yes. And I think that also was clear to me in the 25 million people reached objective that anchored the first fund.

Speaker A: There is a lesson there that you put on record from that deal and I want to push on that a little. You, you said, somewhere in my homework I found a, uh, don't bind an acquirer to a social mission because once you do, it's not an incentive but an obligation. And the most sustainable path to social impact is to make it commercial. So I can already hear somebody in the audience groaning and pushing back on that and say, make the case.

Speaker B: It's interesting the words we use, I think antagonize some things and some of audience members, but let's like play this out and have fun with it a bit. The word commercial I do think makes things more sustainable. And I'll say this in both words because I think some of the audience might resonate with sustainable and not with commercial. But when a product or service is not commercial, and by that I mean it's not making more money than it's spending. And Making a profit, it's going to be short term because unless someone has the pockets to just continuing to fund that out of goodwill, it can't make a return so it can't keep going. That was the problem. I saw in Peru that the terms were non commercial and therefore a ah, not empowering, which was very interesting but B not sustainable. And so making something commercial makes it sustainable in the social context, which is very interesting. It's not always the case that commercial equals sustainable. If it was, we wouldn't be in the situation we're in at the moment. But certainly something has to be commercial to be sustainable on one dimension. I think on another dimension we absolutely see things that are commercial and definitely not sustainable. We come to that at a later point. But in the context of this example,

Speaker A: when you say commercial, do you equate that uh, with market rate or do you mean just with an objective for a financial return but not necessarily a market rate? Could be concessional or something like that?

Speaker B: I am not saying it with the context of what is market rate. Yeah. And I do think obviously in the context of micro finance and financial inclusion there are predatory lending practices which are too commercial. So I think it's actually finding that balance in the middle where predatory lending would say you're actually making way so much money that you're putting someone into debt whereas the not for profit approach where you're making no money and not being able to provide like both of those don't work. I think what we're all trying to find is this bit in the middle to define and iterate it where you do have a sustainable product or service that's empowering and helping the consumer do what they are designed to do with the product.

Speaker A: I'm absolutely shocked to hear that there's predatory lending out there. Let's talk about one more before we move on. Bema hit 30 million policies, mobile distribution, airtime based premium collection, first time insurance buyers in Cambodia, Ghana, Bangladesh and then Allianz comes in. So what's the one thing the impact investing world still consistently gets wrong about that story?

Speaker B: There's this ingrained perception that big companies are bad sometimes. So even the Allianz partnership at the end and you know, the Prudential partnership with Express Life for some reason I think to some audience members it might feel like. But one of the things that I did see and learn at Leapfrog is that large companies have impact, positive and negative. Right. But if you look at the Allianz as an example, the practices of Allianz across The world, um, their BIBA partnership, but also their micro insurance strategy in general. They reach millions of people with access to insurance and the scale of that is larger than some of the smaller local players. I just think there's no judgment on this statement. It's more just a statement that large companies can have impact and small companies can have impacts, but the assumption that small homegrown is always more positively impactful than large is not entirely the case in all examples. And I think that was one of the biggest, bigger reflections that I had, which also led to, I guess, next steps that I took with regards to measuring the impact of listed companies at net purpose as a starting point. Because I do think large companies can have impact.

Speaker A: By the time you're ahead of impact, you're running a framework you've already mentioned. It's fiirm, um, right. For Financial impact Innovation, Risk Management. Right. Because we love acronyms.

Speaker B: Z I was the worst.

Speaker A: And that integrated IRIS metrics across the portfolio, reaching over 160 million underserved people in 33 countries. And then by this time you've already alluded you're sitting on the steering committee of the Principles for Investors in Inclusive Finance. You're really doing the work. And this is back in the day, right? This is a bit more of a pioneering time. I mean, now younger arrivals to the responsible, uh, investment world might be more blase about all this, but this was new stuff back then. But at the same time, your team is spending 95% of their time manually extracting numbers from unstructured PDFs and then punching them into spreadsheets. And then you realize you're in, wait for it, Excel hell. Excel hell. I think I'm going to create a new segment for the show on that one.

Speaker B: Uh-huh.

Speaker A: Huh. So tell me about Excel Hell. And what was it specifically that made you decide that the impact measurement infrastructure itself needed to be rebuilt?

Speaker B: Good question. Yes. So it was Excel Hell. But it was interesting about my job at the time. It was a really split between industry building work in collaboration with unpri, the Global Impact Investing Network, et cetera, and just hard data crunching internally, getting all the data from our portfolio companies, summarizing that into LP reports, and using that to make investment decisions in the internal processes. And I did it for a while in the weeds. And I think it just, at some point I stepped back and thought, huh, I wouldn't ever have done this like this at Goldman. Right? I didn't do it like this at Goldman. I had a platform that gave me Data that I could use to grab the data and generate insights. Because my job as an investor is to analyze the data and, uh, make decisions based on it, not to spend 95% of my time actually aggregating the data in the first place. And it just dawned on me that if I was doing that in my job and I checked, all of my peers were also doing it in their jobs. And at this point, about 70% of global capital was signed up to the UN Principles for Responsible Investment with a commitment to invest more sustainably. But I thought, how is that ever going to happen if all of us are sitting here manually punching numbers from PDFs into Excel files? Someone needs to build a data infrastructure that can surface these data points for investors to make decisions on instead of spending all of their time analyzing and aggregating the data. And that's exactly what exists in financial markets. So, uh, Bloomberg was built for bond traders, FactSet was built for investment bankers. Cap IQ was built for private equity in the early 2000s with a web interface. It just felt to me that, hey, we're in the new chapter of capitalism now. We've got 70% of capital committed to investing, not just for financial returns, but social or environmental returns. Someone needs to build the data infrastructure to make that moment matter and to make that commitment possible.

Speaker A: So was there a specific moment or a specific day when you said to yourself, I can't sit here and not solve this. Tell me about that.

Speaker B: Yes, there was. It was January 1, 2018. I remember the day. I think there's something powerful about starting a new year and thinking, am I going to do what I did last year? And I think 2018 was the year I said, no, I'm not going to continue to do this. I also just felt like I had a good team, the organization was evolving. It wasn't the place where I could have maximum impact. And so I did take a step back, actually took about two weeks to really step back. I think I took two weeks off and look at the market, look at the data provider stories that I just mentioned, looked at the volume of capital that was committed to what we were doing, and actually developed a concept for net purpose in those two weeks. That convinced me there's something real to go after here. And I needed that, like, what is it that I'm going to do? And so that was how it came together in a way. At the end of that two weeks, I had a concept deck, like a 10 page story for myself to think about a little more. And that's what launched off onto the journey.

Speaker A: So you eventually leave Leapfrog that year in 2018. When did you do that? Because you went through this introspection at the beginning of the year, January 1st, you said on 2018, but the company was actually registered in December of 2018. Take me through the thought process and series of events that led you to finally say goodbye to Leapfrog and make the company registration in December and launch

Speaker B: Netpurpose at the start of 2018. I sat down and I needed my own aha moment. What am I going to do next? I needed something crystal clear about what my next steps would be. And so that process started in January 2018. Once I had got conviction myself, I actually went through a period of just consulting. Not consulting officially as a job, but consulting others on the proposition, including Leapfrog. So I shared my thoughts with Andy and the team early that year that I was thinking about building something bigger for the industry. Um, I also shared the thoughts with a number of my peers in the industry to get their sense of whether they felt this was needed and would it actually solve some of their problems. And so I guess you could say that 2018 was a bit of a conceptual year. Figuring out what exactly I did want to build and supporting Leapfrog as well, in a transition where I could step out to build this business the following year in 2019, and making sure that the impact team at Leapfrog was set up for success and the funds and the team itself was as well. So that was about a year, a year of transition.

Speaker A: Give the high level overview of what netpurpose actually is today, its mission, how it works, who uses it, uh, how much aum, um, is managed through using your tools. And I want to get at something specific from the beginning. What's the fundamental distinction between what you're providing and what maybe a traditional ESG ratings provider delivers?

Speaker B: Yeah. Thank you. So netpurpose is a measurement platform for sustainable and impact investors. And we currently support clients with about 20 trillion in assets. And they're using our data to manage actively or passively, north of 150, $200 billion in funds. The core differentiator between Netpurpose and an ESG rating, there's a number of them, but one of them is we are facts, not scores. So we really provide data, not ratings. And data covers all of the metrics that prescribed by IRIS on the positive impact side, GRI on the negative impact side, like absolute emissions, et cetera, tnfd, TCFD et cetera. The quantitative data that measures impact. The second Differentiator uh, between us and an ESG ratings house is that we're really focused on measuring impact and um, the actual impact of companies on people and the planet. Whereas an ESG rating is actually assessing the financial risk of social and environmental factors and governance factors, not the actual sustainability or the impact of the company on the world. It's a very different lens if that makes sense.

Speaker A: You used Bloomberg of sustainability as a way of describing it. Unpack uh, that for me because Bloomberg's a $30 billion industry built on providing financial facts with absolute precision. But you're saying impact data should be architected the same way. What would have to change for that to be true? Because I don't think it's quite as precise.

Speaker B: You don't think impact data is as precise as financial data?

Speaker A: I don't think we've achieved the same level of precision. Or have we?

Speaker B: I uh, do think of us as a data provider for financial markets equivalent to a Bloomberg or a FACTSET or a Cap iq. I actually like the analogy of cap IQ a little more because Cap IQ's core innovation was very consistent. Comparable data on thousands of companies with click to source transparency. And I was a super user of Cap IQ at Goldman Sachs web based platform as well. So I think of the differences today in that we are providing social and environmental impact data, not financial fundamentals, which is different. Is that less precise? I don't think so. I think like you do have metrics that are very well defined like GHG emissions, I mean measuring water use, measuring your gender diversity, measuring the number of customers you have that are provided access to financial services. These are all quite precise business metrics actually that are measured by companies around the world today. I think disclosure on those metrics is certainly not 100% and it's not regulated yet like accounting standards are. However, the International Sustainability Standards Board ISSB under IFRS is designed to make that mainstream and all of the regulation that we've seen evolve in Europe and other markets is also designed to make that mainstream. But in addition you don't have the level of analytics on top of financial fundamentals data. So I think most of where some of the larger financial data players like Bloomberg and factset also play is in analysis of financial data and trading platforms, pricing, all of that kind of stuff which we don't have. On the impact side.

Speaker A: Maybe it'd be good if I put the central critique of ESG ratings on the table here. Bloomberg Businessweek ESG Mirage investigation found that ah, McDonald's received a rating upgrade despite producing 54 million tons of CO2. That was in 2019. Tesla got removed from the S&P 500 ESG index in 2022 while ExxonMobil stayed in. And that was because Tesla's governance score was lower. So what's important here is that these aren't mistakes. They're a logical output of a, uh, system that measures financial risk to the company, you know, considering what we refer to as ESG factors but not the company's actual impact on the world. That's kind of the diagnosis. But how did you build a remedy to counteract that?

Speaker B: You're absolutely right. Those scores do measure assessment of financial risk versus impact on the world. They also, the rating systems are a little, well they're black box, so it's not clear exactly, but I mean a Tesla decision versus a mining decision, it's a sector specific approach to a methodology and benchmarking that leads to, to those types of decisions for us. It always felt to me like the reason why most investors are interested in ESG, having worked in an impact fund where all my LPs were asking me about ESG, is because they want to understand our impact on the world or like the risks associated. What we're, you know, are we alienating communities? Are we putting water into the rivers? Are uh, we predatory lending, et cetera. The ESG rating financial risk never really felt like it was measuring what it was supposed to. And it felt to me quite a big oversight that needed to be rectified. So we started by simply measuring impact, like positive impacts, negative impacts, and grabbing all of that data out of corporate filings and streaming it to investors that were trying to build more impactful funds. We just started grabbing the facts. To be honest, we didn't really want to and uh, didn't feel like we needed to create another opinion in the market about what was good or bad. We just wanted to grab the facts. So that's how netpurpose started and we started serving listed equities impact investors. We now support the majority of listed equity impact investors, registered labels here in the uk. And those investors were trying to build, and still are trying to build strategies that invest in the most positive companies in their universe and measure their impact in a way that is as rigorous as the way they measure their financial results. And we were designed to help them with that problem. Uh, that was the starting point of the platform.

Speaker A: We're still sitting here these days with not universal definitions. You've mentioned a lot, sustainability and impact. So people listening to this can understand what you Mean when you're saying sustainability, impact and um, esg.

Speaker B: So sustainable that word needs to be defined. The way we currently define it is according to the United Nations Sustainable Development Goals, which is for all intents and purposes the most wide reaching accepted framework anchored by the United nations. So global consensus and um, Sustainable Development Goals designed to set objectives that promote sustainable development. That framework, the United Nations SDGS is the anchor for a lot of these sustainable finance regulation uh, around the world. So the EU Sustainable Financial Disclosure Requirements regulation is designed to implement the SDGs in Europe and that word sustainable has been replicated in the UK under sdr.

Speaker A: And what about impact?

Speaker B: Impact I use to describe the quantifiable impacts on people and planet that are actually the metrics used to measure progress on the Sustainable Development Goals. So under the SDGs you have 169 indicators that cover impacts on everything from water, waste, carbon emissions, gender diversity, financial inclusion, affordable housing, et cetera. Those metrics I call impact metrics. You could also call them outcomes metrics because in the technical definition there is a theory of change. But for now for simplicity I would say impact.

Speaker A: And then how do you describe esg?

Speaker B: ESG literally stands for environmental, social and governance. Those factors were actually pioneered by the development banks. The IFC Equator uh principles for example was one of the first in the 90s frameworks for measuring environmental, social and governance indicators associated with project finance investments in developed and emerging markets. The environmental, social and governance factors were prescribed for major infrastructure developments in emerging markets, et cetera, where those infrastructure developments needed to account for community displacement or run of river emissions, et cetera in projects that were being built. And what happened is the concept got picked up and applied to more asset classes. So out of project finance it then became started to be used in equity investing in private markets. And the development banks like IFC have ESG requirements for their investments in emerging markets. In private markets ultimately got picked up to be used in equity markets and fixed income by these larger providers like MSCI and sustainalytics. Sustainalytics is a great example of a company that started measuring these things in order to understand impact on the world. And like the environmental, social governance factors of companies and investments, I think what happened, but I don't, I suspect what happened. The pure intent of E S and G goes through waves of adoption and one of the times when investors are more focused on financial return, it morphed a bit into a financial risk concept in order to be relevant to most investors. And then ultimately because there wasn't the data available Today back in the 90s, early 2000s, it became a rating led by analysts in order to assess the financial risk on businesses as a result of environmental, social and governance factors. So today an ESG rating measures the financial risk for businesses as a result of E, S and G factors, which is different from the original intent and uh, is not really necessary anymore now that we have real data.

Speaker A: So we don't need MSCI and sustainalytics anymore.

Speaker B: I think it depends what you're trying to measure. If you're looking for another indicator of financial risk, I think it's a good, like open your toolbox. If you're looking for an understanding of sustainability and a company's impact on the world, it doesn't measure and fit that purpose.

Speaker A: Let me push back. You've said no scores, no black box. Raw facts. Click to source. So a skeptic could say, okay, a portfolio manager is running 800 positions, doesn't really have time to interpret the uh, raw facts on every single one at some point. Doesn't the raw fact approach just recreate the same problem but one layer down?

Speaker B: Yes, I definitely think that's true. So we started with raw facts and well actually we still do raw facts. That's most of and all of what we do. Everything we do is underpinned by raw facts. It's definitely the case that measuring alongside each other emissions, uh, water waste, gender diversity, you get into a multi factor optimization problem. Basically where we've come from, a world where we're measuring profit, earnings, per share, creation, dilution, and now we're asking an investor to think about carbon, water waste, et cetera. It's too much in one investment decision to optimize for all those factors. So I think you're seeing a couple things evolve as a result of that. One is more differentiated strategies. So I think actually sustainable funds now they're not trying to achieve all of those things at once. They're setting an objective, for example around energy transition or emissions reduction or plastics or water preservation, which I think is very healthy. And that's actually the precedent that Leapfrog set. Very specific objective of access to micro insurance. One thing, not 10 things. And in addition, we've had developments in assembling the evidence base for thousands of business activities to tell us what is sustainable in cement, what is sustainable in energy, what is sustainable in plastics or bioplastics. And because of that rich evidence base on a business line item, we're in a position to start to define what is sustainable in each business activity. And if we can establish that Infrastructure, which is what we've worked on. At that purpose, you can get to a simple what percentage of my portfolio is sustainable? If we do all the work to aggregate that up, all of the work is evidence based, but simplicity emerges from the complexity so that an investor can think about their portfolio in those simple terms.

Speaker A: I think you brought me to my next question, which is the story behind what you just told me. It's a story about how you arrived at, uh, one deceptively simple idea, calculating the percentage of a company that is sustainable, because you didn't start there. So how did you get there?

Speaker B: How we got here is, as I said, we started measuring all of the negative and the positive impacts. And actually, for an impact investor, that's great because they're genuinely interested in finding the most positive businesses, calculating their avoided emissions, their waste, avoided their people with access to financial inclusion. Like actually a long list of metrics and comparing each of those to a benchmark to say this impact fund has more impact. When we started differentiating then and working with sustainable funds and transition funds, for example, we started looking at how do we make sense of Tesla, for example, and compare it to General Motors? And that was the problem we were looking at solving. What's interesting about the problem is Tesla. I mean, there's two business segments. One obviously is electric vehicles, the other is solar. But electric vehicles are also provided by some of the larger car manufacturers. And the central difference is that it's 100% of Tesla's business. I mean, there's lots of differences, by the way, in terms of supplying, et cetera, et cetera. But just to keep it simple, it's all Tesla does versus it's, you know, maybe 2 or 7% of what a larger company does. And so we felt that we needed to illuminate that for investors. And we don't do this by ourselves. We work in quite close collaboration with the portfolio managers and our clients who are actually running these funds, but try to illuminate the revenue associated with the positive and sustainable solution versus the revenue associated with less sustainable internal combustion engines, for example. And so when you look at the business mix, then you can say actually a larger company is 7% positive or sustainable and Tesla's 100%. And that's the way to differentiate the two.

Speaker A: Okay, those two are in the same industry. What about two companies in completely different sectors? And let's say they both produce a 40% sustainable figure. What should that mean to me?

Speaker B: Investors diversify their investments across multiple industries. If they're invested in two businesses that are 40% sustainable in different industries. I think that those businesses should be compared to the overall fund objective of like what portion of the portfolio are we aiming to be sustainable? But they're both equally valid. And I think that's the interesting thing. When we got into some of the standard setting discussions at ah, some of the industry organizations that I worked with during my time at Leapfrog, sometimes we'd get into a discussion comparing cancer treatment to low emission paint. And it always felt to me like, I don't think we need to do this. We should be trying to promote innovation in cancer therapy as well as promote innovation in the paint sector. Both of those can stand alone. We don't need to say cancer is more impactful than paint. And I think that's just the celebration approach we've tried to take here is you can illuminate in different industries what is sustainable in that context. And so an investor can allocate across industries and diversify their portfolio while contributing to sustainable development goals in each sector, which I think is quite powerful because I think today a lot of sustainable investment is still investors get like wind power or clean energy. But identifying all the ins and outs of paint production or bioplastic consumption in suitcases or you know, all of the microplastics that end up in the ocean in plastic bottles because of water and consumer goods, like that's actually what's going to meaningfully change the world. And we need to get on top of these issues as well.

Speaker A: So can you make this a little more real to me? Walk me through the data flow. How do you do what you just said? And you got to somehow tell this to me because in a way that people listening to this, if they're on the tube or whatever, you can't show me anything.

Speaker B: Yes.

Speaker A: How does this actually work? Because at the end of the day this all ends up coming out in percentages and numbers and facts.

Speaker B: What we do as a company is we collect data. We do our own research in addition to the data, and then we stream the data to investors. The product basically has three teams. Data research and software slash engineering. So we collect data from thousands of public disclosures on public companies today, which means that every time listed company publishes the sustainability report, they were grabbing it and we're putting it into our ingestion pipeline and we're collecting the data from those PDF reports or Excel files, whatever on the websites and extracting for example the emissions metric or the emissions avoided metric, which has the number, the metric name, the unit, the time period, all of that specific data to make sure it's accurate and clean and comparable across each company. Once we have the disclosed data, which by the way is not perfect as we know disclosure is not mandatory, there's gaps, et cetera. But we grab all that we possibly can because companies are doing a lot of work to tell the world about their impacts and I feel that we should listen to them. The second thing we do is we aggregate a lot of scientific evidence on business activities to understand the lifecycle impact of electric vehicles or I don't uh, know, as we've said, like bioplastics or these other examples. We've got about 1600 pieces of scientific literature that evidence business activities that map to what companies are actually producing. We use that evidence to check what companies are saying and calculate some of the positive impact metrics like avoided emissions. But we also use the evidence to assess the business activities the companies are disclosing and whether it's sustainable or it's not. And then we combine those two together and we produce these analytical calculations, but also produce the raw data, surface the raw data on our web application and feed that to investors through the app or through API or SFTP or even we um, just integrated into Aladdin, which is one of the largest operating systems for financial markets.

Speaker A: You have analysts in Kenya through cloud factory and um, you have NLP based AI extraction through some cohort of sustainability students as another validation layer. And then you have your internal experts. So that's a pretty human intensive pipeline. Where do you choose to keep humans in the loop versus automation? And has the automation ever gotten things wrong?

Speaker B: Yes. So we've been building, I'd say AI native since day one. And this um, the answer to this question has evolved. But yes, we do have three layers of human expertise I would say and validation on the data pipeline. And in a nutshell we do automate what we can in order to get this data to our clients in the most cost effective way. So what we did very early and we continue to do is we literally map the process to get the highest quality investment grade data to our clients. And we will regularly assess whether machines can do a step in that process or whether humans need to do that step in that process. So we're actually co building this I guess like AI assisted human in the loop process and we move humans to the more value additive, the more that machines can do, the more that we can do as humans. Because there's endless amount of stuff to do to analyze this data. We're trying to shift humans to the More value additive tasks and our ability to do that depends on what can be automated with technology.

Speaker A: Last fall, netpurpose acquires the sdiaop Sustainable Development Investments Assets Owner platform. And that's a standard co founded in 2020 by APG, PGGM, um, Australian super and BCI for the world's most sophisticated asset owners and I think collectively representing more than a trillion dollars in aum. Um, they spent five years to build that standard together and then they folded it into your company, which is a six year old London startup by the time you did that. When or how did this conversation with Claudia Cruz and the other founding partners actually start?

Speaker B: Yeah, this is a really exciting um, development for both of our businesses and for the industry. The conversation started years ago, to be honest, we've been building alongside each other for that entire time. And one of the best things about this partnership is that we'd started from different places but ultimately came to the same place like six, seven years down the line. So netpurpose, as I said, started measuring impact metrics across the portfolio. The SDIAOP started measuring revenue segments and classifying them according to how sustainable the activity was. And then ultimately we moved into revenue, they moved into outcomes and impact and it felt like a very good time to bring the businesses together. Been a uh, multi year kind of partnership but came to fruition at the end of last year where we did decide to join the businesses and to join forces in accelerating one standard for sustainable investing. Because I think part of the problem in the industry as well is that we've had multiple standards in multiple different data providers on this and it's a good thing to bring clarity.

Speaker A: The four founding asset owners, they're not just customers, they have board seats, is that correct? So that means you now have VC investors on your board with growth and exit incentives sitting alongside asset owners with fiduciary duties and a strong interest in methodological stability. So those incentive structures are not naturally aligned. So uh, help me understand, you know, when there's a contested methodology call, how does that actually get resolved?

Speaker B: I think it's cool and beautiful that we've got all of these stakeholders around our table. I actually think they are aligned as well. I mean all of us are invested in net purpose to achieve the mission of making capitalism more sustainable. And we all have different skill sets that we can bring to the table to make that possible. I'm a big believer that the skill sets of uh, vc, my skill set in the business and the skillset of the asset owners are complementary and all necessary to get us where we want to go. Methodology decisions are taken by the advisory committee, which has the SDI founders as well as netpurpose advisory committee members from World bank, ifc, Stanford Hester CIO Pension fund. And the board takes more of the matters related to the company's sustainability, where we're investing as a business and making us commercially sustainable, as I mentioned earlier, uh, so it's quite a nice complementarity.

Speaker A: Let's talk a bit about greenwashing. What are the risks that institutional investors are most exposed to right now? And how does outcomes based data actually change that picture?

Speaker B: Yeah, so I think greenwashing was quite significant risk a couple of years ago when you had a lot of claims being made about the social environmental performance of funds without data to substantiate those claims. It was the impetus for the FCA to launch the sustainability disclosure requirements to help consumers make sense of what product is and isn't sustainable. And they've limited the use of words for products that have been through the rigorous test of measuring outcomes. I think ultimately outcomes enable a sustainable fund to measure, uh, what they say they're doing. If you're running a strategy that is investing in reducing carbon emissions, one of the tactics you might take to do that is to invest in the energy transition. And unless you're investing in measuring the proportion of the grid that is renewable in the assets you're investing in, you don't really know if the businesses you're investing in, uh, are transitioning or not. What you're seeing in the larger energy players is they're bringing online solar, uh, wind, biofuels, et cetera, to complement traditional fossil fuels. And you need to measure the megawatts that come out of those production mechanisms against the megawatts in the old fossil fuel mechanisms to actually measure the energy transition. So outcomes help an investor measure progress on their stated objective.

Speaker A: You've described yourself as a regulatory geek, so walk me through how you think about the evolving landscape. You know, the Alphabet Soup, the SFDR UK SDR, ISSB, BE, and I'd like to understand your view on the UK's SDR's Improvers category, because I think that's interesting philosophy behind it. It's probably under examined actually.

Speaker B: So yes, I am um, by necessity a regulatory geek. I guess in this space there's a lot of regulation to come to terms with. And as I said before, the SFDR regulation in the eu, one of the first sustainable financial disclosure regulations, and it was designed to implement the SDGs in Europe in full to achieve the goals by 2030, that regulation created categories of Article 9, Article 8 and Article 6 funds that needed to fulfill certain requirements. Alongside that, the UK developed their sustainability Disclosure requirements regulation, which actually took a more consumer friendly view to help consumers differentiate types of sustainable funds. And what they came up with was a set of words, sustainability impact, sustainability improvers, sustainability focus, and then the mixed label which included all three of those. Now the regulations are somewhat similar, similar. The UK was not prescriptive on the measurement techniques other than saying you need to measure outcomes. And now SFDR has tried to realign with the UK and SFDR 2.0 by adopting more consumer friendly labels such as transition, et cetera. So my opinion is the UK has done a great job of setting up a framework that actually identifies funds in the way that they're constructed today. And now we're seeing alignment with SDR and SFDR and the Australian market is developing their own labeling regime and taxonomy to align. So we're catalyzed movement, we've aligned and we're actually heading, I think, in the right direction. I also like this improvers label because I feel like investors often feel in this, the context of sustainability that they either need to be sustainable or not. But the reality is most of the market is not sustainable today. And the improvers category gives investors the opportunity to be unapologetic about the fact that not everything's perfect yet, but we'd like to do better, we'd like to improve. And I think that's quite relaxing for many who feel like they either need to be high positive impact or nothing. Reality is we need more people to get on the improver journey and that's what's going to meaningfully move the dial on not having plastic in the ocean than just investing in the best positive companies.

Speaker A: But uh, some people say it can also function as a loophole. Company can claim it's in transition and avoid accountability for current emissions. And so in a way, the label can do more to obscure than illuminate. So how does your data help investors actually engage the 80% of companies in transition rather than either screening them out or letting them hide behind the label?

Speaker B: Yeah, I mean the best thing about data is you can measure it consistently over time. And the improver's label central to a strategy that seeks to improve is to achieve change over time. And so it shouldn't be possible for a company sitting in an improver's portfolio to not improve. They need to take steps to align with the objective of the fund to improve the renewable energy percentage for Example they're providing to improve, reducing virgin plastic production to improve, et cetera. And those things are measurable by investors. And that's I think what will catalyze change instead of I don't think it's a catch all for companies that don't want to improve or to investors that debt on to improve.

Speaker A: You have uh, an emerging markets lineage that almost nobody else in the space can match. And you've seen firsthand time at leapfrog how capital actually moves. In markets where disclosure is thin, regulation is light. You know, the data infrastructure simply doesn't exist. Net purpose depends on disclosure. So I want to understand how do you draw the line between verified fact and a well informed estimate and how do you make sure that the investor on the other side knows which one they're looking at when they click down?

Speaker B: Yeah, so very specifically in our platform, calculated numbers are green and reported disclosed numbers are purple. So you can tell the difference. And in short, if a company doesn't disclose, we can conduct our own research. So we have both those teams, data and research. In emerging markets there is less disclosure, but there's not nothing. And actually some of, to our points earlier talking about leapfrog companies, some of the emerging market businesses have very, very good disclosure. For example, in India, disclosure on microfinance access is mandatory. So public companies in India banks actually disclose very clearly on the same metrics that we measured at leapfrog. Same in Indonesia. I think it's a, uh, myth sometimes that it's not there at all. It is there and if it's not there, we can fill the gaps with research just like we would any other company.

Speaker A: You said in the future every investor will be a sustainable investor, just like every investor is a financial investor. But the US is retreating from Paris. ESG has been kind of politically weaponized as a term. BlackRock has softened its framing noticeably. And some of your largest potential clients operate in jurisdiction where the word ESG is now a liability. How has all of that changed your pitch and what does the version of net purpose argument look like that actually lands when you're making a pitch in Texas, for example?

Speaker B: Every investor will be a sustainable investor, I believe to be true over the long term, as you said, just like every investor is today a financial investor. Also, just to be clear, even though every investor today is a financial investor, it doesn't mean they always make great financial returns. And over time I can imagine a similar playing field where we are able to clearly separate the most sustainable investors from the ones that measure it. But actually don't achieve great sustainability results. I think this is a journey that will take time and the foundation of it needs to be data and transparency. And our job is to work with clients who want to embed this into their investment decisions to get them the best data they can possibly find. I believe over the long term all investors will want to incorporate these factors. We go through ebbs and flows. It's really interesting to me actually like how political topics like this become and actually that's I'd say one thing that I did not anticipate as much. I could never have predicted the current global order when I set up the business in 2019. But I have to say I do look at other players. You mentioned responsibility earlier, uh, generation with David Blood. Like there are like long term houses that have made this a reality. And I think as long as the problems we're trying to solve are not going away and only becoming more urgent, I uh, do think that capital markets will transform to factoring them into decisions. Ultimately the allocation of capital is done on behalf of people and we want to live here. We're going to have to incorporate this into our decisions. I think today investors are measuring these things and not yet able to price them. But I do think we'll move towards pricing in the future.

Speaker A: Wanted to ask you something quickly about your competitive position. MSCI has a market cap, you know, somewhere north of $130 billion. And um, s and P now owns market. Kevin Gold's company ESG book has 25,000 company coverage. You have roughly, I think 40 staff and around 5,000 companies. What's the moat around Netpurpose data research,

Speaker B: unique kind of insights and ultimately our clients and our uh, positioning. We're not providing ESG ratings so we're not entirely comparable to an msci. However we do provide the data and the facts. So the click to source transparency is a differentiator. Yeah, there's a number of things that make netpurpose unique that will sustain over the long term.

Speaker A: Now let's zoom all the way out. What's the single greatest remaining obstacle to impact measurement? From it becoming mainstream as a financial measurement, you know what has to happen to remove it.

Speaker B: We need to develop a shared understanding of one or two things that are material to the planet and to portfolios. And uh, I think that's what's going to make this more mainstream. I think one of the most important parts is and what we work on is being able to measure it as uh, simply measure net purpose as simply as net profit so we can Conceptually get on board with the need to measure, for example, the proportion of a portfolio that's sustainable alongside value of the business that's generated financially. We're working towards that standard. I'm excited to see where our conversation lies in five or ten years around what that metric is. But ultimately we need to make the complex simple.

Speaker A: But what's the obstacle that needs to be removed to get this adopted in a mainstream way? Is it more ease of use or is it recognized credibility?

Speaker B: Well, I mean a different way to answer the question is why don't more people measure their impact today? Because they're pursuing short term financial returns is the answer. And I think until we make it very clear how these impacts are material to the sustainability that before. Because that percentage of a portfolio that's sustainable, that can be interpreted for me, who cares about the planet as wow, only 16% of a global index is actually sustainable. That makes me think, oh, like I want to put my money in something that's 80% sustainable. But to someone who doesn't care about sustainability, it also says 84% of a, uh, portfolio is derived from resources that won't be here in 10 years. I think what's missing is the shared understanding of how these things are not only going to ruin the world, but ruin financial returns. Because at the moment we have still a system capitalism that maximizes returns to capital. And given the disclosure requirements usually over

Speaker A: the short term, I think what has to happen is people have to be convinced that is more profitable in the long term or more profitable to the bottom line. I think it hasn't happened in the mainstream because they're not convinced. Nobody has ever had to create um, a pitch deck to try to convince people to make higher returns. There's never been to a presentation like that. This is actually good. Low is bad.

Speaker B: That's right. Like why don't people, more people measure their impact because they don't feel it's imperative to maximize financial returns.

Speaker A: That's a very flippant thing to say. But I keep zooming back out and say, uh, that's, I attribute the holiest G blowback in the US and because the US was different than Europe and is different. I don't feel like here in Europe it was rammed down people's throats in the way that it was in the US it was just kind of crammed with no real demonstration. It just wasn't sold right. It was either not sold right or it wasn't convincing there. I haven't lived in America for a long time But I have that feeling that it was just kind of oversold. In fact, I think Rokus said, just like the Americans always do, always oversell it, now there's a backlash to it. It wasn't sold in a credible way. You shouldn't have to sell it if it's true, if everything we're saying is true, you shouldn't have to sell it. You should just have to sell it.

Speaker B: And I think that one of the other key issues is this short term, long term view. Because what's the job of a manager of my money? It's almost become their job is to get the best earnings in the next quarter versus the next year. But actually I'm charging them, by the way, I don't charge anyone because I do that much of it. But if I was, I would be charging them with managing it over longer than a quarter, multiple years. And in order to do that effectively, you've got to have a view for where long term returns are going to come from. And you can't have a view of that if you think that like we're literally running out of land, water resources, et cetera. You can't build a strategy for the long term unless you factor those decisions. But I think that understanding that training, that education, that framing is just not clear. And it doesn't show up in the responsibility to maximize financial returns, as you've said, it's not in the discipline. And I think Ashby Monk at Stanford, he's a long term co founding advisor of netpurpose and long term collaborator. But he said very well last week that this is an apprentice industry investment management. We've all kind of learned on the job. And what we learn is we go to business school and we learn like financial accounting and then we get into capital markets and we learn financial statements. And because we've all learned these things, we haven't really learned the discipline of like what resources are these companies using? How much of that do we have left? As soon as I think that becomes more effortlessly understandable, all of us want to live on this planet, so surely we've got to incorporate those things. It's more that we haven't learned it, we can't see it yet. And I guess what we're trying to do is illuminate that for more investors.

Speaker A: Let me ask you, you've built a career moving deliberately from one system to the next. If you look at Goldman to Peru to Johns Hopkins to Leapfrog and, and Net Purpose and um, the pattern I see is that every step you went towards the thing that was broken towards where the data wasn't, where the infrastructure was missing, where the tools didn't exist. Most people, when they sense that kind of void, they move away from it. What is it in you that keeps you moving towards the hard problem?

Speaker B: I think what drives me is truth, authenticity, and each of those chapters. Before I made the move, I struggled with truth in the sense I couldn't find the data at leapfrog, for example, to benchmark whether we were doing a good job or not. At Goldman, I didn't believe that earnings per share accretion dilution was what these CEOs were optimizing for. And yeah, at Netpurpose, I'm still anchored on like, what is it? How many years do we have left? What changes do we actually need to make? And we still got to get that data right. This is a longer term journey and I think that's the ultimate driver for me. And also liking the planet that we live on and wanting it to be here. 50, 100 years.

Speaker A: If you could sit every pension fund trustee in the world down for 60 seconds, what would you say to them?

Speaker B: Your portfolio is having an impact. You should understand that impact and try to improve it.

Speaker A: What's the one thing the ESG ratings industry still hasn't admitted publicly?

Speaker B: ESG does not equal sustainability.

Speaker A: Every company has an impact whether you measure it or not. You've said that. What happens to the companies whose investors never look?

Speaker B: They get driven towards financial returns at the board level, but Depending on their CEOs and their teams, they still have an impact and they might pursue that in addition to their financial returns.

Speaker A: Sam, I've got a few last rapid fire questions to wrap up our talk here, so just give me whatever comes to your mind or if nothing does, feel free to take a pass because that's okay too. If you had to name the single most important challenge in the sustainable and impact investment data space at this point in time, what would it be?

Speaker B: Consistent disclosure.

Speaker A: Okay, what do you know now about building impact measurement infrastructure that you wish you would have known in 2018 when you founded Netpurpose?

Speaker B: I mean, everything about building an engineering team, a data team, a research team to get the product out the door.

Speaker A: So you wish you would have known everything.

Speaker B: There's a first time founder curve, like learning how to build an engineering team, a data team, a research team. I didn't know that before I started this journey and I've learned a lot.

Speaker A: Well, there's something challenging about being incompetent again after so many years. That's my experience on this podcast, actually. Can you describe an impact investment you were involved in at Leapfrog that you were convinced of, uh, at the time you invested, that it ticked all your impact boxes, but in the end it didn't turn out. And what was the investing lesson learned from that experience?

Speaker B: Net. Net lesson learned is you really need to have both an impact mission and solid commercial acumen to make the company a success.

Speaker A: So you can't have one and teach

Speaker B: the other if you only have a mission. In order to bring the mission to scale, you need to know how to build, like I've just said, a data and engineering research team, but in your domain. So you need that commercial acumen to bring it to sustainable scale.

Speaker A: And now the converse of that. Can you describe an investment that you had some level of skepticism about, or maybe you even passed on it, and the investment turned out to be far more impactful than you had ever expected? And what was the investing lesson learned from that?

Speaker B: Uh, investing lesson learned from that was that large companies can have an impact as well as small. If we view large companies as the devil or similar, then we're missing a big opportunity to create scalable impact.

Speaker A: Was that something that you passed on because of a bias against large companies, or did you not invest in a small company because you didn't think they could have the impact?

Speaker B: I think we definitely had a sense that we needed to invest in small, impactful companies when we started fund one. But you'll see as the uh, portfolio progresses that there are more larger businesses in the mix because those businesses were actually having an impact and their CEOs were committed to the social mission as much as we were as investors.

Speaker A: If someone wants to pursue a career at the intersection of impact investing and sustainable data infrastructure, where or how would you advise them to start in the business?

Speaker B: Well, they could come and join netpurpose on our data team, get familiar with the disclosure practices of companies. There are opportunities to join other data businesses like ours where you can jump into the weeds and understand disclosure and think about how to use it for decisions and work with clients on how they use it for decisions, or jump into an investor and start using the data to make investment decisions.

Speaker A: Do you think you need to do one first before the other? I mean, can you really just jump into a data company without having the basic foundation of being at a, ah, JP Morgan or someplace to understand how that's used? Can you really just parachute in and not have that background?

Speaker B: You can definitely jump into a company like netpurpose with analytical acumen and a focus on attention to detail. I think it's more difficult to jump into an investor without prior experience being an analyst or an investor. So if you want to be an investment professional, the advice would be to join an investment house. I think it's difficult to go from a data provider to an investor.

Speaker A: Sam, um, you've been very generous with your time today. I really enjoyed the conversation. You've built something that I think is genuinely important, and the story of how you got there is one of the best I've heard on this show. Thanks very much for taking the time.

Speaker B: Thank you so much. And thanks for this conversation. I've thoroughly enjoyed it too. And thank you too for the work you're doing to illuminate more of the stories of this space. I do think we're heading in the right direction. We just need more of us to be working with these objectives.

Speaker A: We're at the front end of the Runway. I think we got a ways to go yet. Now tell everyone what's the best way they can find out about netpurpose and the work you're doing.

Speaker B: You can find us@netpurpose.com uh, you can also find us on LinkedIn and join our conversation where we're sharing insights all the time on sustainable companies and illuminating clients who are sustainable investors.

Speaker A: All right, perfect. And if someone wants to get in touch with you, what's the best way for people to reach out to you?

Speaker B: Contactet.com perfect.

Speaker A: Everyone should definitely check out netpurpose.com it's written exactly as it sounds and follow them on LinkedIn. And if you want to reach out, it's contacteth.com so. Okay, Sam, thanks again for coming on.

Speaker B: Thanks, Scott. Appreciate it.

Speaker A: All right, goodbye everybody. You've been listening to Sri360. If you enjoyed it, please hit the like button and subscribe to get future episodes. You can find an archive of all previous podcast interviews and more articles and information on SRI ESG impact investing, sustainable investing and socially responsible investing at our website, sri360.comm if you'd like to read more lessons learned from world class SRI invest investors, get a copy of Scott Arnel's book Sustainable and Responsible Investing 360. It's a must read for anyone wanting to know more about investing for positive, social, environmental and ethical impact, all with market financial returns. These are the stories and tactics of those leading the way as sustainable and responsible investing goes mainstream. Sustainable and Responsible Investing 3660 is now available in hardcover, ebook and audiobook format wherever books are sold.