Transcript

Julia: Hello, my name is Julia Streets, and welcome to the podcast series StreetsTalksTo. In every episode, I interview leaders from some of the most influential firms, bodies and initiatives in the financial services industry. We explore what’s at the very forefront of innovation and change. We think about the challenges facing firms and the industry at large, and we uncover the opportunities that exist both today and as we look ahead.

Right now, every client and firm is looking to achieve two things. It’s either growth and/or transformation. And as a business, we help firms with three key offerings: campaigns, content, and coaching, because we never forget the human in the mix. That’s why we do the podcast, because we want to hear the voices of the humans who are driving these amazing businesses. And we really hope you enjoy this series, which you can find on all good podcast channels. And all the episodes are listed on our website streetsconsulting.com. And you can find the episodes using the hashtag StreetsTalksTo.

Thank you for listening and welcome to StreetsTalksTo SustainoMetric. Let me tell you a bit about the firm. SustainoMetric is an independent provider of high quality bespoke research, data analysis, and advisory services in the field of sustainability. And right now, despite the rhetoric, it seems this discussion is very much a priority. Why? Well, because their clients include some of the world’s most prestigious ESG rating agencies, financial market participants, civil society organisations, and corporates.

Their role is to gather and analyse the all-important, and in many cases, critical sustainability data. Data that delivers real commercial value, data that improves operating efficiencies and data to deliver investment performance. Their work starts where the client’s capacity ends, and they were founded in 2017 and have grown at quite the pace. A team of more than 150 experienced sustainability analysts all working as a seamless, dependable extension of their client’s own research teams.

So whatever your sustainability theme, regulatory framework, wherever you have a gap in your coverage, that’s where they step in. Their analysts, researchers, and advisors cover the entire spectrum. I am delighted when we think about actionable insights, when we think about the research that empowers organisations that I am joined today by two guests. The first is the Founder and the CEO, Kanchan Mishra. And the second is the Director of Strategy, iInnovation, Mohit Agarwal.

Allow me to introduce them to you. Kanchan Mishra is the Founder and the CEO, with more than 16 years of experience combining responsible investment research across various sustainability strategies, project management and advisory support on ESG integration to ESG raters and fund managers. Given that experience, combines investment research across a multitude of sustainability strategies, this expertise really drives value for her clients.

Think investment policy, think strategy, think research. She has worked with so many prestigious organisations. So Kanchan, I’m not surprised that you’re a leading commentator. Thank you for joining us today. It’s a pleasure to welcome you to the show.

Kanchan: Pleasure to be here, Julia.

Julia: I’m so looking forward to getting into this discussion, and I’m delighted that you brought a colleague with you, Mohit Agarwal, who is the Director of Strategy and Innovation. Allow me to introduce Mohit to you. Every day he focuses on organisational strategy, developing new service offerings, client onboarding, and leads several automation and technology initiatives within the organisation.

It won’t surprise you that he brings many years of experience in sustainability consulting management, and delivering large ESG and sustainability research engagements. And this pedigree brings previous experience from roles at Morningstar Sustainalytics and Evalueserve, where he was responsible for setting up a leading large multilingual, cross-country sustainability research team. Who better to join us today as we explore this subject? Mohit, welcome to the show.

Mohit: Thanks, Julia. I’m really excited to be here and looking forward to our conversation today.

Julia: Well, as indeed am I. And it feels like now is the time to have the conversation, because there is rhetoric out there, some people might even call it backlash about ESG. Kanchan, let me come to you, first of all. I’m so curious, when you talk about the current context, do you see an impact on your clients? And how do you see the future of sustainable investing?

Kanchan: Well, that’s interesting. So given the current rhetoric, you might assume that the number of sustainability-focused funds is decreasing. But research from Maples, they are recognised to be experts in regulation, legal and compliance in the fund management industry. They published a report last month that shows exactly the opposite.

For example, there’s been a 24% year-on-year increase in the number of sustainability-focused funds. And many will know the EU’s Sustainable Finance Disclosure Regulation, as we call it SFDR, and looking specifically at the Article 8 and Article 9 funds, and as a background, these are those funds that have an ESG or sustainability focus under the definitions of the directive.

It’s worth noting that the total assets invested in European sustainability-focused funds now surpass six trillion Euros. That’s huge. And in fact, about 54%, which is more than half of all new funds launched in Europe in 2024 were established as sustainability-focused funds.

Julia: Well, I have to say I’m really surprised hearing that data, and thank you for bringing the data with us because that has really quite shocked me, if I’m honest. What do you think is driving this growth?

Kanchan: There’s clearly a huge appetite from investors for these types of funds in Europe, but I think perhaps also the anti-ESG, the backlash has also driven investors from all around the world to look at Europe as a place to access these funds. And we believe that ESG and sustainability are more than just words. To us, it’s also about risk mitigation, where effective sustainability means safeguarding financial returns for investors long into the future of climate change, and shifting socioeconomic stance.

As we know that in certain regions there has been a move away from ESG, but from a global perspective, the desire to be sustainable for businesses as well as for the environment, it’s as strong as ever. I think climate change mitigation and respecting human rights are not going anywhere, neither for the companies and nor for the investors.

Mohit: And if I could just jump in here, Julia, to build on Kanchan’s point, you know ALFI, right? The Association of the Luxembourg Fund Industry. ALFI found that 85% of the global sustainable funds net assets are domiciled in the EU. So while many commentators are suggesting that sustainability related funds are struggling, the numbers seem to point to a very different reality, and that really tallies with the way we work.

For us, sustainability is more than an ethical imperative. It is a powerful business growth strategy. And what I mean by this is that by integrating sustainability into business decision-making, organisations can safeguard long-term value, adapt to evolving market demands, and stay ahead in an increasingly uncertain world.

Julia: It’s fascinating hearing you both talk about the growth, but also you were talking there, Mohit, about the commercial imperative, which is about safeguarding and also driving strategy, organisational strategy as well. But as you say, the world is incredibly uncertain at the moment and there are so many changes at play.

Now, I know there’s a package of changes to the EU sustainability legislation that was called The Omnibus, and I’m sure we’ll get into that. Kanchan, do you see this as a setback, the EU progress in terms of sustainability or is that driving some change?

Kanchan: As a bit of background, the Corporate Sustainability Reporting Directive, which we call CSRD, is a European Union’s regulation that sets standards for how companies disclose information about their ESG performance. And then Omnibus was intended to lighten the regulatory burden on companies by relieving them from their obligations to report on sustainability initiatives.

So what was earlier planned and targeted as a result of Omnibus, about 80% of the companies have now been removed from CSRD scope. Not having to comply with this would mean availability and quality of sustainability data for asset managers are now in question. We have a lot of buy-side clients as well as large buy-side network, and they’re all frustrated.

They still have to satisfy SFDR despite the EU pulling the rug out from underneath them. And they also need to allocate capital now with far less intelligence for due diligence. So ultimately, reduced sustainability reporting impairs market transparency and hinders the alignment of capital flows with EU sustainability goals.

Julia: And your point there about far less intelligence for due diligence, that’s really key right now. My question is, what can they do?

Kanchan: Without firsthand ESG data that is from the reporting companies to rely on, asset managers are going to have to resort to investor models or estimates to fill in the data gaps. And in short, they will have to then rely on some element of guesswork, which adds a significant risk back into their decision-making. And I think they will now operate on lower level of data quality to guide them in launching new thematic funds and will now struggle to categorise funds as Article 8 or Article 9 under SFDR.

Julia: I’m really pleased we’ve managed to get into some real insight into what’s going on right now. In the interest of time, and also I want to have a very complete conversation. So I know you’re incredibly busy, so I want to be sure that we cover quite a lot. I wondered whether we could just pivot the conversation to look ahead a little. Mohit, come on in here. When you look at the ESG data space, what do you see as evolving right now?

Mohit: Well, I think ESG data is here to stay. We see good quality data as the foundation to sustainable decision-making and capital allocation. This has always been the narrative in our conversations with investors. How we source this data is something that we’ll see evolve. For example, 10 years back, data quality was questionable and we have come a long way since then. As we move forward, on one side, we need to leverage AI to produce even more data. However, we need to be very conscious of maintaining the quality of such data.

We, of course, don’t want to go back 10 years from where we started. Besides, we also believe that more granular data sets will be in demand, for example, geospatial data, biodiversity, physical risk are topics where very exhaustive data sets are required and will require much nuanced methodologies and technologies to bring such data points to life. This is also where we see a growing demand from our clients and other investors.

Julia: And of course, in that mix, everybody’s talking about AI. Mohit, let me stay with you because I’m really curious to explore how you see AI playing out in ESG data, and also what your SustainoMetric’s approach to leveraging AI is in your pathway.

Mohit: AI has been quite a buzzword. It is quickly being adopted across our industry as a key enabling technology offering major advantages in data collection. But accuracy continues to be a challenge, and this is where human expertise becomes all the more important. Of course, dealing with data every day, AI can be extremely helpful. In fact, any smart business in our line of work would be mad not to harness it.

However, if we really consider every single analyst has 86 billion neurons in their head, and when you think about how that plays with AI, the key is how to blend these together. For this, quality control and governance becomes paramount. As an organisation, we use strict quality controls and data validations to ensure that our analysis and advice is the best in the industry. Our promise to clients is that all our technologies are controlled by expert, highly experienced human beings. Every one of our AI ships has a human captain.

Julia: I love that, every AI ship has a human captain. That’s a great way of describing it. So in a market that is changing at some pace, Kanchan, let me bring you in here because I would really like to explore. What do you think will be most relevant in the future when we think about sustainability and business in general?

Kanchan: We are seeing a lot of influence from geopolitical factors impacting the global economy. And this is a knock-on effect on sustainability. For example, the war in Ukraine, tariffs from the US and retaliatory responses from the trade partners have all put pressure on the global movement of goods. And many of these goods are vital to the global economy.

I think global supply chains are under immense pressure and businesses will need to manage potential impacts on profitability or even business viability. So for organisations trying to build and realign resilient supply chains, I think reliable intelligence to inform due diligence has never been more important than now.

Julia: I think where we really pause on those macroeconomic, those geopolitical dynamics, Mohit, I have to come to you. Every day you think about new product offerings. When you think about the future strategy of the organisation in response to that and also particularly the supply chain dynamics, what matters right now?

Mohit: Global supply chains can be really fragile things. Even before current events, the impact of COVID had not yet dissipated. Several high-profile cases, for example, automotive companies and cosmetic firms have shown that the reputational damage can be as severe as the financial damage. Because of this and because of the demand we were seeing in the market, we have just launched our supply chain due diligence service.

And I think it couldn’t have been more timely since the recent global trade tariff dynamics add significant uncertainty. Greater uncertainty means greater risk, making it harder for organisations of all types to accurately understand, predict, and optimise their resilience. They need to understand the risk associated with the companies they’re investing in or doing business with.

Firms call on us to help them build resilient and truly sustainable supply chains because we can provide a full, accurate and in-depth analysis of supply networks, thereby producing actionable data-driven insights so that clients can make critical strategic decisions with confidence.

Julia: And I think that’s really important because one of the threads that’s come through this conversation is about navigating times of uncertainty, where the dynamics are shifting all the time and that whole point about critical strategic decisions with confidence. But you’re not the only person in the market to have a supply chain service. So how does yours differ?

Mohit: Indeed, the market is flooded, and I’m proud to say that ours really stands apart because it leverages one, latest technology, including AI; second, expert human knowledge with domain experience; and last but not the least, analysis baked in firmly at the core of our offerings. If you really look at the market, current supply chain, due diligence and risk management offerings mostly include software companies on one side and highly automated software as a solution on the other side.

And from working closely with our clients, we could see there was a clear gap in the market. These enterprise grade solutions are designed for large organisations with significant resources, leaving smaller businesses struggling with high cost, complex implementations or features that don’t scale down effectively to their needs. So the market really needed an alternative, a scalable, accessible solution requiring more customised and expert support. Let’s not forget why this matters.

Every organisation’s procurement team needs guidance and a scalable support. They have to run the entire risk management process from a supply chain perspective. Through constant access to human support throughout the process, clients tell us that our supply chain due diligence service means that organisations can benefit from comprehensive and reliable insights into supply chains, whatever their size be.

Julia: I think that point about it can’t just be the preserve of those who are huge. There are organisations of many sizes in this world, but also, Kanchan, your client base is truly international. We thought there about how supply chains can fuel growth. I suppose I’ve got two questions. One of them is when you’re thinking about your growth for SustainoMetric and also what clients are also thinking about, share some insights on that.

Kanchan: For our business, I think over the next two to three years, it’s all about adapting to ever-changing environments and responding. Just as we have brought our new supply chain due diligence service that Mohit spoke about, is actually a response to what clients need. And as they’re managing their risk, they’re trying to manage their supply chains, but never forget that they need to deliver returns.

Therefore, for us, we focus on value and how we continue to add value using latest technology, tools and techniques. But really with a laser-like focus on delivering value to our clients, again, who need to deliver all the important returns and results. And for our clients, as I was saying earlier, this conversation about sustainability or ESG is not going away.

We have continued to see growth of funds, we have seen changing dynamics in Europe, and we firmly believe this trend will continue. We are analysts after all. For our clients, it’s about how do you remain agile? How do you make sure you have the best intelligence at your fingertips? And do you have the right partner by your side? And that is what we are very proud to do every single day.

Julia: Well, I have to say time is never our friend on these podcasts, but my goodness, we have covered a huge amount. If we think about understanding the dynamics at play through your customers, wherever they are in the world, whatever size they are, also getting some real understanding about what makes you different. And particularly, as you’re enjoying bringing AI into the mix, but also thinking about how you’re addressing this ever-growing market, which I have to say I’ve been really surprised by some of the numbers around that.

I had no idea 24% year-on-year increase in the number of sustainability-focused funds, nor indeed that 54%, if I quote you correctly, Kanchan, of the new funds launched in Europe in 2024 were established as sustainability-focused funds. That has really surprised me. If anybody listening who wants to find out more about SustainoMetric, go to the website sustainometric.com or follow them on LinkedIn. And as we close out, I just want to take a moment, Mohit, thank you so much for being with us. It’s been a joy to have you on the show.

Mohit: Thank you so much for having me, Julia. This was truly an engaging conversation. I really appreciate the opportunity to share my thoughts through this exchange.

Julia: Well, the feeling is very, very much mutual. And Kanchan, founder and CEO, thank you for being with us and for all of your thoughts.

Kanchan: Thank you for having me here, Julia.

Julia: And to all our listeners, this has been StreetsTalksTo SustainoMetric. Thank you for listening and until next time, goodbye.

This episode of StreetsTalksTo was produced by Podshop on behalf of Streets Consulting Limited. At Streets Consulting, we are a strategic business development, marketing and communications consultancy focused on helping financial services and technology clients around the world.

Every client is focused on growth and transformation, and as FinTech PR specialists, we are there to help them every step of the way. We do this through our three Cs: campaigns, content and coaching, because we never forget the human in the mix.

You can find this episode on streetsconsulting.com, and using the #StreetsTalksTo. And we can also be found on LinkedIn and on YouTube. Thanks for listening.