In 2007, when Polecat first opened its doors, supply chains had gone global and yet there was a global food crisis driven by a sharp escalation in worldwide commodity prices. The Cold War with Russia was also well over and yet NATO was engaged in a war grappling with concerns regarding the potential use of weapons of mass destruction and disruption of access to energy resources. We were heading into a global recession and stock prices were falling as investors, and society as a whole, perceived that the value of businesses was declining. The world had become a more volatile, uncertain, complex and ambiguous environment for businesses to operate in.
Polecat was founded with the sole objective of measuring the social capital value – the perceived value - of a business. In a volatile, uncertain, complex and ambiguous environments, there is a business-critical need to harness the Internet to understand how investors and other external stakeholders are thinking about businesses, what is influencing them, and consequently how the perceived value of a business is changing over time.
Fifteen years on, in 2022, some things have not changed much: NATO is engaged at the periphery of a war with Russia in the Ukraine - grappling with concerns regarding the potential use of weapons of mass destruction and disruption of access to energy resources; concerns regarding climate are still increasing and the world is facing an emerging global food crisis. Unlike 2007, we are also emerging from a global pandemic, and global supply chains are now reshoring. The world is still a volatile, uncertain, complex and ambiguous environment for businesses to operate in – but over the past 15 years, we have also seen growing clarity on how the world perceives a company’s social capital resilience – through the development of Environmental, Societal & Governance (ESG) factors. Polecat tracks, trends and quantifies these ESG factors for companies around the world, year on year and in real time.
In 2007, only 5% of Global Assets Under Management were managed using ESG factors. Today, over a third of all Global Assets Under Management ($40Tn) are managed using ESG factors – this is projected to be over 50% by 2026.
The reasons for this sustained and rapid growth are:
- Demand is led by investors: Over $500 billion flowed into ESG-integrated funds in 2021, contributing to a 55% growth in assets under management in ESG-integrated products. The shift to sustainable investing is so powerful because it’s being driven by demand from the bottom up. Quite simply, investors – from individual savers through to large institutions – are directing an ever-increasing proportion of their portfolios towards sustainable strategies as they look to use their capital to help create a more sustainable world.
- Technology is driving product innovation: New technology is helping fund managers keep pace with this sharp rise in demand for sustainable investments. The internet transformed the way information is captured, documented and disseminated, providing investors with access to more data than ever before. However, it’s only now, with the development of artificial intelligence (AI), that investors have the ability to analyse it all. The result has been a dramatic improvement in corporate transparency, as new data sources provide better insights into how companies are being run from an ESG perspective. As fund managers use AI to tap into the “big data” revolution, new and exciting opportunities are being created across an ever-growing range of sustainable strategies.
- Companies are being encouraged to take action: The good news is that many companies around the world already understand the need to take action on ESG issues; however, because the E, S or G issues that matter to one company will differ from those that matter to another, granular company-specific ESG intelligence is vital if companies are to take action where the greatest impact can be achieved. Similarly, encouragement from active investor engagement and government regulation for sustainable laggards can be much more effective than simply divesting.
The energy transition is creating new risks and opportunities: As well as focusing on the ESG credentials of individual companies, investors are starting to give more consideration to the sectors, countries and regions that have the resilience and competitiveness to thrive as the world moves towards a low carbon future.
ESG is now a critical topic in the boardroom – an opportunity for sure, but also a business minefield if not continuously managed well.
Polecat provides the intelligence that resilient businesses and organisations need to manage known and emerging ESG risk.
For example, with our partners in the insurance sector, Polecat has been developing new products serving non-traditional sectors, such as Reputation, as well as looking for more advanced ways of serving existing markets such as Product Recall and Directors & Officers insurance. Insurance is, at its core, an instrument to reduce financial uncertainty and mitigate losses - and product innovation in the insurance industry is essential if the industry is to tackle increasingly threatening and previously intangible ESG risks. Within the insurance sector alone, the opportunities are huge:
- Supply Chain Resilience: Supply chains are reshoring, to insulate economies against future trade disruptions, with the US, the UK and Germany benefiting the most. Increased demand for business interruption, supply chain and other reshoring-related advisory and insurance cover will generate $30bn of premium by 2027.
- Energy Transition: The green transition has accelerated due to energy security concerns resulting from Russiaʼs invasion of Ukraine. Furthermore, 2020 saw over $210bn of overall losses from natural catastrophes, which was a 27% increase from the previous year. All sectors need to decarbonise, with investments in green energy generating additional energy-sector related advisory and premium of $237bn by 2035.
- Third Party Risk: The last few years demonstrated the tangible financial losses companies face when third party relationships go sideways. Whether a business partner engages in a questionable practice, a brand ambassador says or does something untoward, an investor or counterparty is accused of greenwashing or impactwashing, an entity delivers an experience that fails to meet stakeholder expectations which spurs a boycott, a supplier is squeezed between political forces or labour forces or an altogether lack of a labour force, the sums associated with such adverse discussion events are appreciable. 40% or more of companies that experienced such a reputational risk event saw their revenue and/or brand value directly impacted. Yet, while these third-party risks may be unpredictable in their timing, they are measurable and indeed even insurable.
- Food Security: Increasing supply and environmental shocks are resulting in higher food prices and increased risk of global food shortages. As the world warms, more frequent extreme weather events will lead to increased incidence of crop losses. Penetration of multi-peril crop insurance is currently low, with public-private partnerships expected to play an increasingly important role over the next few years.
Polecat and the Insurance Sector are harnessing AI + IQ to analyse public domain data, delivering real-time, objective and quantified leading indicators for known and emerging risks. Increased demand for business insurance against supply chain, energy transition and food security alone is worth an additional $300bn+ in premiums over the next 5-10 years.
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