Novata, a fast-growing start-up that is providing ESG data solutions to private market investors, has unveiled a carbon-tracking tool that’s devised to be affordable and user friendly to even the smallest portfolio company.
The New York-based technology company’s Carbon Navigator helps companies and private equity general partners (GPs) calculate their carbon emissions and compare their performance against their peers, using Novata’s proprietary benchmarks.The product, which has been six months in the making, adds to an expanding canon of carbon accounting tools that have hit the market in the past year designed to pull in data from the furthest reaches of global supply chains. This will be crucial to fulfilling growing investor and regulatory demands for Scope 3 emissions data.
Novata distinguishes its offering with powerful technological capabilities that takes the hard work out of the data-gathering process. Novata also offers hands-on guidance with its Services Team – dedicated carbon experts that can support clients with emissions measurement, carbon reporting and performance analytics.
“We want to radically lower the barrier to entry for portfolio companies, both in terms of cost and in terms of complexity,” Novata Carbon Product Lead, Mark Fischel, told ESG Insight. “It’s fast, and it’s really easy to use.”
Harvesting Scope 3 data could be the hill on which the battle to mitigate climate change is won or lost. About three-quarters of most companies’ carbon footprints are accounted for by the emissions of the firms in their supply and distribution chains. Scientists and investors realise that getting the Scope 3 piece right will be crucial to bringing the world closer to the Paris agreement targets.
The difficulty, however, is getting those service providers to accurately calculate and report their carbon performance data. For many, the cost of incorporating carbon-tracking software and infrastructure into their operations is too high. Others lack the in-house expertise to do the job correctly.
Hence the need for a simple and low-cost solution, said Fischel.
Almost “every data request sent out by investors to their portfolio companies has Scope 1, Scope 2, and Scope 3 emissions as some of the first metrics in that request,” he said. “Our clients had a strong need for a solution that was intuitive, accurate and cost-effective to calculate these metrics.”
Novata’s Carbon Navigator takes a novel approach; alongside energy data, it simply asks portfolio companies to submit their corporate spending accounts, highlighting the vendors they do most business with and in which part of the world.
The Navigator will ingest that spend data and calculate the company’s carbon footprint based on typical emissions for each vendor’s specific activity in a specific geography. The metric is expressed as an emissions-per-dollar value.
Emissions factors are collected from a variety of global scientific bodies and collated according to Greenhouse Gas Protocol methodologies, which underpin most carbon accounting standards. Novata sources that data through a partnership with German outfit Climatiq, which has more than 62,000 scientifically vetted emissions factors.
“For most companies, the emissions from their supply chain is actually one of the biggest contributors to their overall footprint and all that flows through in their general ledger,” said Fischel.
For Novata, which was launched in 2021 and now has 130 investor clients, the Carbon Navigator is the latest in a suite of ESG tools it has created for private investors, a segment of the financial system that is becoming increasingly important in sustainable markets. With between a third and almost half of all institutional money invested in private markets, GPs’ greening efforts are being closely watched by large banks, asset owners and managers.
Because they typically direct their capital to non-listed companies that aren’t subject to the same strict reporting rules as public business, GPs must make extra efforts to obtain ESG data from their portfolios. Their business model of closely engaging with the companies in which they invest makes them ideal vectors for the transmission of ESG data from small businesses – of which supply chains are largely comprised – to the broader financial world.
Their drive to gather ESG data has also been fuelled by the EU’s Corporate Sustainability Reporting Directive (CSRD) and recent proposed reporting rules in California (SB-253), which will require many corporates worldwide, if they do business in California, to disclose their Scope 1, 2 and 3 emissions. By providing GPs with the tools to extract the data from their portfolios they can provide a crucial role filling gaps in the global ESG data record.
“Everyone’s got a shared stake in Scope 3; your suppliers, your suppliers’ suppliers … the investors, the companies they are invested in… it’s intermingled,” said Fischel. “The more people that start asking for this data, the more people then start tracking it and then they ask their stakeholders and value chain partners for more data, and this multiplicative effect takes place.”
The Navigator will contribute to Novata’s own database, which has so far aggregated data on more than 6,000 companies to enable clients to benchmark against their industry. By easily comparing a company or portfolio’s performance to anonymized peer data, Novata clients can contextualise their own data and get a better sense of how they stack up against industry peers.
The Navigator will also provide them with greater transparency into the metrics generated, showing the methodologies and data used in the calculations. This transparency will provide an “audit-ready” trail for when CSRD and other regulations begin requiring reported data to be validated and verified.
“It’s been a bit of the Wild West up to this point, where people just say, ‘my carbon emissions are X’, but with CSRD and the California regulations, the data will now have to be assured by third parties,” said Fischel. “We’re getting ahead of that for companies by giving them an assurance-ready audit trail for every calculation that has been made.”
Another feature of the Navigator is its efforts to further improve the quality of global ESG data. It will assign a data quality value to every piece of data, identifying among other things whether the data was directly reported or estimated. Along with the benchmarking capabilities, Fischel expects this to encourage companies to strive to improve their data collection strategies.
“Companies reach out to their suppliers and their suppliers reach out to their suppliers,” he said, adding that eventually “everyone’s bought in to collaborate with one another on sharing this data and getting more accurate and improving over time.”
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