Our investment in YvesBlue — the true picture of a company made clear
By: Katherine Wilson
Tags: Sustainability, Impact Investing, Climate, Investment, Fintech

Impact & ESG is a theme we have very strong conviction on at Illuminate. We have written about this in the past and have been actively looking for investments in the space given the substantial impact this will have on the way we judge and assess companies in society. We are thrilled to announce our latest investment in the space, leading YvesBlue’s $2m Seed round alongside SixThirty, Tribeca Early Stage Partners and other industry insiders.

What if you learnt that 90% of your pension’s value was ‘intangible’?

Well… this is exactly what a recent study of the underlying value of the S&P revealed. If you strip the value of tangible assets from the market cap of the index you are left with a multi-trillion-dollar black hole. This number has been on a steady upward trajectory as our lives become more digital and was only accelerated by Covid-19.

'I ntangible value’, things that cannot be explained by basic accounting, has only increased with the proliferation of digital economies.

Book value is not everything. There are many companies whose publicly traded value is below book. This indicates the market has a different view on the value of that company to what an accountant would. Most investment managers value companies using a discounted cash flow analysis (DCF) — where future revenues & earnings are estimated using a host of factors to probability weight and calculate the present-day value.

The challenge is 1) working out what these future cash flows will be and 2) judging what should be considered for this analysis. Here, traditional accounting standards only get you so far.

No mainstream standard can tell you how to value a ‘brand’ or a company’s reputation; the public fallout that could result from revelations of modern slave labour in a supply chain; the cost of transitioning to a carbon economy; or which businesses are at risk of having their models turned upside down by regulations. These are just some of the questions being grappled with by professionals who have a dire lack of tools to support this analysis.

Despite what is missing… market data is already a multi-hundred-billion-dollar business

Bloomberg, Refinitiv/Thompson Reuters, IHS Markit, FactSet, S&P, Moodys, MSCI… there is a long list of multi-billion-dollar vendors who sell market data, analytics, risk, reporting and pricing tools to professionals trying to value and manage portfolios of assets.

But what if the absence of granular ESG data meant that analysts were buying just 50% of what they needed to make investment decisions. Whether that number is 5%, 50% or 95% it points to an enormous opportunity for new vendors to become the torch bearers for Impact & ESG and help define the new standards we need to judge how a company is affecting society beyond the earnings it makes.

The growth in new policy interventions, as reported by the PRI, shows no sign of slowing.

This is not a passing fad. The AUM growth in Sustainable Funds clearly demonstrates the real business opportunities for asset managers who can capitalise. We are only at the tip of the ESG iceberg (pun intended). Growing shareholder activism and the number of cumulative sustainability focused regulations shows there will be penalties for those who fall behind across the entire supply chain.

Hope as we might… there will NEVER be just one score, data source or reporting standard to quantify impact and ESG

There are already several emerging businesses who are attempting to serve this need as well as the incumbent ESG rating providers. While these products serve a purpose, we do not think they are the complete solution. Two analysts reviewing the same earnings statement can draw two very different conclusions; we believe the same is true of Impact & ESG. The current difference is that earnings statements are largely standardised, detailed, quantifiable, and comparable. ESG scores are not, so the market is begging for more data sources to enable them to make their own analysis.

This is not a problem that relates to a few fringe companies — rating agencies disagree on the blue chip names in every portfolio.

We can already see this playing out. Different ESG ratings agencies frequently give the same company vastly different scores depending on their internal methodologies. There is no easy solve for this. New entrants are either coming up with new ‘better’ scores or exposing the data points behind this to allow analysts to make their own decisions on how to rate a company.

One thing is clear –the number of data sources and authorities on quantifying ESG & Impact will continue to proliferate. We are drowning in data and, like in other areas of financial market data, we do not believe there will ever be just one score, data source or standard. This is especially true in a frontier space like ‘Impact’ as we begin to quantify new data points for the first time and incorporate them into company analysis.

If there are multiple data sources, there will be a need for tools to analyse them… this is where YvesBlue comes in

We believe there is a growing gap in the market for a provider to pull together the disparate and growing number of ESG & Impact data sources (both internal and external) to present a detailed and consolidated view of the Impact characteristics of the companies in a portfolio.

The Yves Blue solution solves one of the biggest problems in mainstream ESG analysis.

Most financial professionals are not ESG or Impact experts and will need the support of both internal initiatives and external vendors to incorporate this thinking into their decision-making processes, risk modelling, portfolio construction and investor reporting. Building a platform which ingests multiple data sources, visualises them, gives you the flexibility on what to prioritise and report this back to clients is no easy (or cheap) feat.

Yes, there will always be institutions who want to build this in-house… but we do not believe that it makes sense for every company managing money, from institutional asset managers through to independent wealth advisers, to do so. Especially when the team at YvesBlue have a sophisticated and easy to access solution ready to go.

A team the market can trust

This is a critical part of our investment thesis and reason we believe this team is positioned to win. Over the next decade, company analysts will need to rapidly learn to incorporate new data points and frameworks into their way of working. There are few people and teams who have both the ESG & Impact credentials, tech skills, entrepreneurial drive, and financial services background to understand how to build a product like this to market.

Anna-Marie Wascher, founder and CEO, was an early mover in ESG & Impact as the founder of Flat World Partners — a leading, early, impact investment advisory firm that counts blue chip global banks as clients. She was frustrated that there was no way to actively track the portfolios her team constructed so Yves Blue was born. Michael Smith, co-founder and CTO, was the founding CTO at Ellevest, building flexible frameworks for digital portfolio management. The depth of the rest of the team is equally impressive for such a young business and includes individuals with experience launching some of the earliest sustainable funds and building tech at leading VC backed wealth techs.

We are looking forward to working with this team as ESG and Impact analysis becomes as fundamental to company assessment as Income Statements and Balance Sheets.