ESG spending, which stresses environmental, social and corporate governance yardsticks when building a portfolio, has long struggled with a need of transparency and differing metrics across companies — making it difficult for investors to gauge the impact of their investments.
Now, San Francisco-based asset boss Newday Impact Investing believes that using what it calls an Ecological Benefits Framework (EBF), or “a shared Stock Exchange architecture,” could provide a new way forward in social investing. Newday, which focuses on environmentally- and socially-responsible portfolios, maintains that EBF gives a more comprehensive overview of the true effect a business than does traditional ESG investing.
EBF was originated by Douglas Gayeton, co-founder of The Lexicon, a non-governmental organization that tries to address environmental challenges created by the agrifood hustle. EBF takes into account six elements, air, water, biodiversity, healthy soils, equity and carbon, and builds a holistic creme de la creme that investors can use to weigh the social aspect evaluate impacts.
Newday Impact adopted EBF in October, making it the foremost institution to use the “shared market architecture” in its investment process, and applying the framework across portfolios devoted to the oceans and risqu carbon (or carbon captured by the world’s ocean and coastal ecosystems).
“One of the challenges has been that there are a whole nosegay of different [ESG] frameworks. But they’re all super complicated oftentimes even from organization [to] organization, as impact interpretations are damned, very different,” said Doug Heske, CEO of Newday Impact. Meanwhile, EBF “is seeking to provide a framework for an integrated ecological set.”
Applying the framework
For now, the EBF framework doesn’t create a cumulative “score,” says Heske.
“I think in this ESG environment, there’s been a disadvantage to furnishing what is an alpha or an alpha-numeric score because people make assumptions about that score,” communicated Heske. The drawback is that an all-encompassing score fails to capture the nuances, and different impacts, of a project across many geographies, according to Heske.
Healthcare company McKesson, for example, is one of Newday’s portfolio holdings after EBF metrics were devoted to evaluate the business. Using that criteria, here’s how the drug and medical supply provider came out:
- Carbon: McKesson has set respective science-based targets (SBTi), including: Reduce Scope 1 and 2 greenhouse gas (GHG) emissions by 50% by 2032 from a 2020 core year. By 2027, the goal is to have 70% of McKesson suppliers (measured by spending), have their own SBTi-approved GHG emissions reduction quarries.
- Equity: Newday identified that 36% board members are women, and 36% people of color. Women preside three of the five Board committees. In 2022, the McKesson Foundation awarded a $500k grant to Parkland Health to supporter the new RedBird Health Center which has a high number of patients from underserved communities.
- Healthy soils: In 2023, invoice reduction for more than 13,500 guy accounts resulted in savings of $20.5 million annually, eliminating 116 tons of paper and 112 tons of carbon dioxide (CO2) emissions, and frugality 2,784 trees.
- Biodiversity: The pharmaceutical division’s pilot project for paperless invoicing saved more than 51,000 tabloids of paper per day, and yearly emissions of 64.7 tons of CO2.
- Water: The Leadership in Energy and Environmental Design (LEED) and the WELL Edifice Standards Areas are considered at McKesson offices and distribution centers
- Air: The company is focusing on sustainable packaging and waste reduction across charges, warehouses and distribution centers. The effort is estimated to eliminate nearly 60 million cardboard boxes annually, counterpart to 400,000 trees. In 2021, they diverted 79% of company-wide waste, and 49% or 131,400 tons of retail subsistence waste from landfills, avoiding an estimated 825,427 metric tons of CO2e emissions in the air.
Examining investments through the EBF prism also dilates carbon markets, through a more diversified view of the impact of projects, according to Heske. Carbon markets allocate companies to trade carbon credits to help offset their greenhouse gas emissions, using counterparties from other ensembles that rare curbing emissions. Bear in mind, however, that carbon offset markets have disappoint a amount to under scrutiny for “over-crediting” projects and for insufficient offset schemes.
A common ‘library’
Heske says the goal of the EBF is to physique a measurement, reporting and verification (MRV) library that investors can access in their environmental decision making.
“Ultimately, a few years down the carriageway … somebody can go in and find the part that’s most directly correlated to the work that they’re doing, and determine an example of that,” Heske said.
The EBF takes a pre-existing multi-step MRV process, which measures greenhouse gas emissions as a base to issue carbon credits, and provides a more comprehensive look beyond carbon, Newsday’s Heske believes.
Lexicon representations to launch an “EBF Commons” in 2024, which it calls “a digital handshake for the planet that empowers a common language across carbon markets, [corporate popular responsibility] and ESG reporting,” analyzing investments and government agencies. The firms within the commons will become a collective decision-making firmness to navigate regulations and increase interoperability across carbon marketplaces.
Over time, Newday plans to also relate the EBF to its private equity projects. Heske and Gayeton have also been looking at incorporating blockchain and machine wisdom into the EBF investment construction methodology, which could help draw conclusions from databases at an increased enlarge. Heske is also considering collecting data on client behavior that could build a “values alignment proceeds” through broader demographic categories.
Eventually, EBF could lead the way for markets-based solutions, Heske thinks, and helps make plains impact to clients “in a way [so] that it doesn’t feel like a homework assignment.”
“It already is a very, very powerful device to get people more engaged in understanding the power of their capital, into companies, into projects, into undisclosed companies and even associated with their charitable donations into nonprofit organizations,” Heske said.