John McIlroy – 14 Feb, 2022 General

You’ve heard of FinTech, and you’ve heard of RegTech, now just over the horizon ESGTech is starting to stir. Supporting this new ecosystem may be a way for cities and regions to get a seat at the Tech Table and attract the next big thing in digital investment.

When you think of pressure being put on companies to improve their environmental and social performance your mind may conjure a few committed activists protesting outside some headquarters. But new European legislation on Environmental, Social and Corporate Governance (ESG) could well be changing the dynamic. Companies suddenly find themselves under pressure ‘from the inside’.

The Sustainable Finance Disclosure Regulation (SFDR) came into effect in March 2021. It requires all EU asset managers, and non-EU managers selling financial products into the EU to publicly disclose their approach to sustainability in their investment decisions, and to describe any adverse impacts their investments may have on environmental or social goals.

What is most interesting about this regulation is how its effects ripple through the corporate system. Asset managers looking to prove that they have considered ESG impacts are suddenly hungry for more information from the corporations they invest in. In turn, these corporations are having to prove that they are taking ESG seriously and are looking for assistance on how to record and report their activities.

And this is where ESGTech comes in (hopefully with a catchier name to come). Just as RegTech provides solutions to the ever-increasing demands of compliance in the financial industry, so ESGTech can do the same for companies needing to prove their ESG credentials.

What is ESGTech?

Looking at some of the companies already active in the market shows that ESGTech brings together technologies associated with sustainability, human resources and corporate social responsibility, but with a greater emphasis on data and compliance reporting rather than PR. It covers a range of technologies and platforms including satellites and sensors, AI and machine learning, and accounting and reporting software. Whatever the solution they all have the same aim: to help companies identify, measure and report on how their activities impact on environmental and social justice:

  • GHGSAT uses satellites and patented sensor technology to measure emissions from individual facilities anywhere in the world. The data is then transformed into actionable insights with in-house analytics to help companies optimise their operations, reduce emissions and uphold environmental standards.
  • VitalMetrics developed a cloud-based greenhouse gas accounting platform that allows companies to calculate their emissions based on whatever data they already have.
  • WWF’s Water Risk Filter allows companies to upload their water use data and assess water risk in relation to climate change for physical assets or long the supply chain.
  • Greenhouse helps more than 400,000 companies report on the diversity, equity, and inclusion practices in their recruitment process.
  • Clarity AI uses machine learning and big data to deliver environmental and social insights to investors and organisations. In December 2021 they raised $50m in their latest funding round.

Could ESGTech be your opportunity?

Most locations are trying to promote their digital ecosystems as a place for international investment, but it feels like FinTech, and to some extent RegTech already have their pecking order. Since 2016, 25 cities have accounted for half of the FinTech FDI market, while Deloitte’s RegTech Universe shows a concentration of companies in around eight markets worldwide.

If you’re feeling behind the curve in these Techs, then maybe taking a leap on a potential future sector like ESGTech is worth considering.  You probably already have the obvious building blocks of broadband infrastructure, highly skilled graduates, and entrepreneurs, but how do you focus that on a potential growth area?

  • Map what you’ve already got and how it can be applied to ESG (e.g. people, companies networks, meetups, VCs, potential customers)
  • Organise ESG specific events to link entrepreneurs, funders and companies needing to report
  • Provide dedicated funding and tax incentives for ESG related programmes
  • Develop Techhubs around ESGTech
  • Let the world know what you’re doing

Environmental, Social and Corporate Governance is likely to likely to play a much bigger part in company reporting in the years to come and now is the time to get ahead of the competition. Supporting an ESGTech cluster is a win-win for all involved. Innovative start-ups get the chance to develop while you bring jobs and recognition to your city, all while helping to make the world a better place!