14 September 2020
"Lack of transparency is a major problem with leading ESG rating providers," was one of the Impact Awards judges' comments that led to the Net Environmental Contribution initiative (NECi) winning the title of impact initiative of the year, global.
Investors are increasingly integrating environment, social and governance (ESG) criteria into their investment decisions. However, the tools and ratings systems that inform these decisions are often provided by opaque, proprietary models, which hinders the benchmarking of decisions.
NECi – a transparent, global, and open source initiative that has been developed by Paris-based fund manager Sycomore AM, in partnership with sustainability consultants Quantis and I Care & Consult – measures the extent to which investable companies or projects are aligned, or misaligned, with the environmental metrics.
It integrates climate, biodiversity, water, air quality and waste/resources issues, across value chains.
The outcome is a single figure per issuer, which ranges from -100% to +100%, applicable to all industries and asset classes.
"Our aim was to provide a simple answer to a complex question: 'Does this business, company, fund or index contribute to the environmental transition?' In 2020, the NEC metrics cover thousands of issuers representing more than a quarter of global capitalisation in value," says Jean-Guillaume Péladan, head of environmental strategy at Sycomore AM.
At the upper end, +100% corresponds to activities with a high environmental impact that are aligned with the transition and with international objectives for the fight against climate change.
A 0% measure corresponds to the average solutions offered by the global economy and to economic activities, which have a limited environmental impact
At the lower end, -100% corresponds to activities that have a detrimental environmental impact.
The tool also allows for the assessment of transition risks and opportunities.
"The NEC initiative is an extremely innovative and efficient measurement tool that helps investors to look beyond simple carbon intensity," commented another of the IMPACT awards judges.
The more compact the business model, the easier the NEC is to calculate, which makes it suitable to use for small and medium-sized enterprises (SMEs), the company says.
In 2018, the decision was made to make the initiative open-source and accessible at www.nec-initiative.org