ImpactAlpha, Oct. 7 – Private companies and private markets represent the majority of the world’s economic activity, but their environmental, social and governance, or ESG, performance has been opaque at best.
A consortium including the Ford Foundation, Omidyar Network, S&P Global and Hamilton Lane, are backing Novata, a new public benefit corporation aiming to streamline ESG measurement, data collection and benchmarking for private companies and private-markets investors.
Novata is led by Alex Friedman, formerly the chief financial officer of the Gates Foundation and chief investment officer at UBS Wealth Management. Novata is seeking to be a data hub to help companies gather, analyze and report ESG data that can be benchmarked against other companies.
The goal: “Allocators and investors could more intelligently be able to figure out where should capital flow,” Friedman told ImpactAlpha. “We view it as a crux issue when it comes to the whole ESG story.” Banks and insurance companies, for example, increasingly are pricing loans and policies on environmental and social performance indicators. Private equity assets have increased by more than 150% in the past decade.
The heart of Novata’s platform is a “contributory database” that companies and fund managers can both add to and use to compare ESG performance by industry and other factors.
The data is particularly important in calculating climate impact. “All these net-zero commitments that have been signed up to by public companies, they’re somewhat hollow if you can’t actually look at the supply chain of those public companies, and the supply chains are private companies,” Friedman said.
The Ford Foundation is a prime mover behind, and investor in, Novata. The foundation’s president, Darren Walker, has carved out $1 billion from the foundation’s endowment for mission-related investments. He said Novata’s tools “will be an essential part of creating an economy that works for all.” (Disclosure: Ford Foundation and Omidyar Network are financial sponsors of ImpactAlpha.)
Novata raised a seed round of financing this summer. Investors include the private-equity firms Clearlake Capital Group, The Vistria Group,and Kohlberg & Co., which also are advising the company. “We’ve experienced firsthand the critical need for a more integrated approach to measuring ESG,” said Clearlake’s José Feliciano.
Friedman said the company’s public-benefit status is intended to signal a middle-ground between venture-backed startup and nonprofit organization. Novata’s nonprofit backers hold a majority of the shares, but the for-profit status should let the company raise capital and attract talent.
“I keep using the word ‘public utility,’” he said. Novata’s reporting framework will be available for free, and database access and benchmarking tools will be priced at substantial discounts to prevailing prices. “We’re designing this to be durable and to last, but not to be purely profit maximizing at all.”