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