ESG as a Strategic InsightTransforming ESG from a compliance requirement to sustainable competitive advantage through algorithms and AI
The ESG Imperative
To provide a dynamic set of ESG Indices to predict, monitor and assess the real-time impact of ESG-driven measures in support of both compliance metrics & competitive insights
…powered by algorithms and math
Context – What is the current state of the state?
1. ESG disclosure requirements will be closely monitored by the SEC, FTC, your shareholders, advocacy groups, litigation firms and your customers
2. Operational, financial, and leadership exposures arise from the current ESG framework that may or may not be aligned with corporate strategy or where economic value is currently – or projected – to be derived – requiring alignment regarding disclosures are focused and economic value is created
3. Internal controls around data quality supporting non-financial disclosures are important, but even more so, mapping non-financial data to economic implications to inform capital allocation decisions will become increasingly critical
4. Execution around ESG requirements will involve a “dance” between where to pay attention and how to ensure alignment towards economic growth – while strengthening leadership stability against unwarranted advances and activist pressures
Any type of such mandate and regulatory friction catalyzes strategic opportunity
Lots of energy yet less clarity exists regarding the alignment between where ESG indicators are focused and where firms make money today – and are likely to tomorrow… with potentially costly mis-alignment of time and capital
Opportunities, therefore, emerge by converting the compliance focus of ESG towards competitive advantage through:
1. Mapping ESG indicators to specific parts of the business and thereby creating traceability between indicators to specific sources of measurable economic value and thereby converting the non-quantitative nature of many of the ESG measurements to the balance sheet and/or income statement)
2. Understanding trade-offs through event monitoring & simulations regarding ongoing alignment to ESG requirements to both capital decisions and leadership intent
The Strategic Questions:
Where do we focus & allocate capital?
How do we more effectively make decisions while balancing between meeting ESG scores & sustainable economic performance?
What are the economic trade-offs in actions to take… which move which ESG scores impacting which parts of the business, our partner network and sourcing strategy?
And from a PE perspective:
1. What is our ESG risk exposures across our portfolio (by industry, by location, by investment thesis, by hold period, by portco)
2. How can we continually monitor both the exposures and steps to mitigate them across the portfolio?
3. What insights can we monitor to convert ESG from risk to competitive advantage through ongoing insights into:
- Partner networks
- Capital flows
- Disruptive, mitigating, and emerging technologies & capabilities
Step 1: Clarify Alignment
The AIM platform adds clarity between where ESG suggests you focus and where you make $ (and consequently where it may make sense for you to focus re: capital allocation to change scores) through algorthimically weighted industry ESG metrics (SASB by default with the ability to interchange ESG metrics) , ANY specific ESG scores (regardless of source) and derives a proprietary materiality ESG Score.
Step 2: Assess Implications
Once the ESG focus is clear, AIM accesses implications on:
- ESG Metrics (such as SASB accounting metrics)
Financial Metrics Impacted
- Critical Business Capabilities
- Underlying Operational KPIs
- Partner Networks & Sourcing Strategies
- Geographic Footprint
Step 3: Model Decision Trade-Offs
After Implications are accessed, quickly model decisioning through Minerva’s powerful AI-Enabled event sensing & simulation tools, including:
- Rapid event sensing & continuous event monitoring
- Simulating implications of external movements + implications of proposed decisions
- Assessing & Monitoring Third-party Exposure and implication of external pressures from partners, start-ups & regulators
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