- Host Tarmo Virki welcomes listeners to "NatureBacked," a show discussing the green economy.
- Guest speaker Frank Meehan from openESG, joins the conversation. Frank Meehan is a seasoned investor and co-founder of SPARKlabs, an investment firm focused on climate, food, and agricultural tech solutions. He also co-founded Equilibrium.ai, acquired by Fiscal Note, and works with openESG, a company transforming ESG ratings and showcasing systems.
Frank's Background in ESG:
- Frank shares his experience in the ESG space, spanning seven years of investing in climate, food, and agriculture.
- He highlights the evolution of his firm and his involvement in managing global ESG data through equilibrium.ai.
The Current State of ESG:
- Frank observes a significant focus on environmental sustainability and explains how even companies seemingly disconnected from ESG are actively pursuing sustainable practices.
- He mentions the need for transparency and highlights a case involving child labour in a chemical plant and the impact on Blackstone's reputation.
- The discussion emphasizes the existing challenges in the ESG space, including the influence of the old-fashioned certification process and lack of transparency.
The Need for Change and Disruption:
- Frank draws parallels between the ESG space and the taxi industry before Uber, emphasizing the closed-shop mentality and lack of transparency.
- Frank discusses the importance of transparency, openness, and rewarding positive progress in the ESG industry.
- They mention the role of media in exposing greenwashing practices and the potential for journalists to utilize public ESG data for impactful reporting.
Introduction to openESG and Its vision:
- Frank explains the purpose of openESG, which aims to revolutionize ESG ratings and make them dynamic, open, and free.
- He describes the role of AI and web 3.0 principles in the openESG system, ensuring transparency, real-time data, and verifiability.
- The conversation highlights the importance of accelerating positive change in ESG and the role of data in measuring and improving sustainability practices.
Challenges and Opportunities Ahead:
- The discussion touches on the challenges openESG may face, with Frank expressing the hope to keep up with the evolving industry.
- They emphasize the need to transition from manual, form-based systems to digital, AI-driven processes for faster and more accurate ESG assessments.
- Frank and Tarmo conclude the discussion by reiterating the need for change, transparency, and openness in the ESG space.
- They discuss the potential positive impact of openESG and the industry's growing recognition of the importance of ESG principles.
In the NatureBacked podcast, we talk with investors and entrepreneurs about their vision of the new green world.
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Tarmo Virki 0:06
Welcome to naturebacked the show where we speak with investors and entrepreneurs about the green economy. My name is Tarmo Virki. And today, my guest is Frank Meehan from openESG. Thank you, Frank, for joining us at nature back.
Frank Meehan 0:20
Oh, thank you. Tarmo. It's been absolute pleasure to chat to you again. Yeah.
Tarmo Virki 0:25
Tell us tell us in a few words, I mean, you're now involved with open ESG, you've been in the ESG world for quite a while, what's your take on the ESG these days?
Frank Meehan 0:36
So well, taking a step back on that. I mean, I have been I started in 2017, I co founded a firm, an investment firm out of Australia called SPARKlabs. Cultivate which invests in climate, food and agricultural tech solutions. And quite early on when it was still in a quite a nascent phase. Obviously, now it's super hot. But we've really been focused on this for quite some time, now seven years investing into the space. And that now has evolved to a firm called cultivate Funds Management, which is out of Australia, which is in an hour $100 million fund investing into climate, food and agriculture with about 40 investments. And then also giving a bit of context to the listener, I started a firm called equilibrium.ai. In 2019, which was acquired by a US company called fiscal note in 2021. And we manage global for global corporates, ESG data, right, so we like all carbon management, plus everything to do with ESG, biodiversity, water management, everything from a social and governance and helping them suck in all of that data into a corporate level, and then helping them with reporting, and now have just joined the open ESG team, which is completely transforming the ESG ratings and showcasing systems or how to showcase how sustainable you are products and company level. And, and that's changing it to making it a completely free, vast, open and dynamic to get a score to get rating to show how sustainable you are. And then you can get verified and improvements on the professional plans. So really understand this space and very boys very tremendously excited by ESG is only going to increase now what's super interesting, of course, is ESG is the lightning rod now for some elements in the US election.
But that doesn't change the game to me, for what I see in the market, everything is very, very dull, extremely focused from an environmental perspective, I'm going to give you a great example. We I was working with a leading one of the leading packaging manufacturers in the world, and they are so focused now the founder is you could say is fairly close to the Republican Party. And, you know, probably not, you know, just you, you think that they are you know, because the founder, not at all focused on ESG. In fact, that company is probably one of the most advanced and sustainable packaging on the planet because they know that they have to sell the pack here and to Walmart etc. And the demands from those companies are sort of Republicans co lead company. It's it's like that, but it's not it's extremely focused on becoming sustainable. And, and you'll see as well, like, you know, the recent, in the recent, the recent case in the US, so I don't know if you saw this, but a bunch of kids who happen to be 1314 year old working in, in a chemical company. And I think it was Kentucky. That Coffee Company is a large corporate, whose ultimate investor is Blackstone. And Blackstone is like horrified now to find out that one of its investments happens to be using 13 year old child labor in Kentucky and a chemical plant, right. You have to find this stuff out. And the only way
Tarmo Virki 5:00
But I do think that, you know, with the changes coming, when you start to apply transparency and openness, it's going to, to take off the, by the cartel, you mean, it's a little bit like the drinks industry probably well, I've been involved where, basically you run the international competitions for drinks, and then out of 1000, participants, 800, wins, win medals, and then those 800 medals as a stickers on their, on their bottle, and, you know, basically buy those medals for 500 or $1,500. Each time, oh, that's a great example of exactly how it works right now, it really is, it's like you pay to play, you go to companies like EcoVadis, which dominates this space. And for any, so if, let's say, Microsoft, right, I want to go out and I need to try and find out all my suppliers or Apple, I need to rate them, I need to understand them, I need to understand supply chain, I need to understand suppliers, right now, I send out these forms these EcoVadis forms or similar systems, then that supplier has to pay, they have to pay just to get started. So then they fill out this form. And then they might get this gold silver bronze certificate, which is kind of arbitrary, but you're effectively paying for it. And the more you pay the kind of more it seems to get better. But you if you then want to showcase that certificate, you've then got to pay more. And then if you want to, if you can prove anything, if you've got like better biodiversity, better water usage, you've got to go through the whole process, again, to completely manual.
Frank Meehan 6:41
And as you say, it's still like this old school certificate stick on a bottle type approach, you know, that has to change. And I think that companies like opening his CI, where you've got this, you know, it's totally transparent, you know, the system is controlled by a doubt. Right, you know, the Council, which is the of experts around the world is under a dowel structure, it's not influenced by the company.
And then how that is put together is then spread out by the Open ESG system. And it's really applying the open AI principles to ESG, I think is what's really required. But this is the same in climate as well, you know, we've had this issue with greenwashing and, you know, carbon credits, etc. You know, transparency is desperately needed in the industry in general.
Exactly. The The challenge is that people do speak more about the ESG. But we're basically talking about, you know, peanuts in a way, if we're talking about the color of the next certificate you get from the certification body, while at the same time, the climate change is accelerating around us. And, and something more drastic would need to be done for actually to change something.
Yeah, no, that's corrected me. Exactly. Things are things are like not moving fast enough, no question. And one of the reasons they're not moving fast enough, is we have not enough data. We don't know how companies are performing. We don't know really what the stage they're in. And also, companies are frightened with the current systems, because the current systems are very punishing.
And the arbitrary punishment as well like with these ESG rating systems, instead, you know, what opening as GE is doing is looking at how to change that and making it much more open and transparent, but also rewarding you for positive progress, right for doing things positively. And I think we've had the same, that's the same thing that we do from from a climate and an agricultural versus investment viewpoint, we're looking at companies that are doing that are really making positive steps forward. But you're absolutely right. Without the data, we can't accelerate things fast enough. Because, you know, one of the one of the things is you can see corporates are trying to make a change if they're putting huge amounts of money into for instance, agricultural to make it more regenerative farming. But without knowing the impact of the of that distribution of money, and how practices are changing. It's very difficult to know where to go with that. So you know, the open ESG guys, they just signed with a company called Tingo in Africa, which has, which is an agri FinTech, which provides equipment and financing to 30 million farmers. And so they're going to be providing the system to 30 million farmers across Africa. And that helps a B InBev, etc, who are putting money into regenerative farming in Africa to understand what's the impact and how to improve things faster and faster, but it definitely is the case like we have to accelerate faster.
Going forward. How do you how do you kind of hope to get people to adapt the opening ESG principles vary. So, you know, to some extent the market is probably established, so to say, but you need to crack it to kind of use brains also in the
Yeah, I think it's like the taxi business before Über but to be perfectly honest, you know, it really is it is an absolute cartel. And you know, the thing about Uber, what Uber, you know, that Tegan bolt, who's the co founder and CEO of openings, she says it very well. What Uber did was he brought transparency to your right, they could told you who your driver was, and how you were going to get to your destination, and how much it was going to cost three things which were not transparent at all with the taxi industry. And that's really why everything changed. And it's very similar in the ESG. Space. You know, it's not, it's a closed shop, it's not transparent about how things happen. It's incredibly manual. If you want to change or improve yourself, it takes ages to showcase it. And it's basically based on stuff 1520 years ago. So I think the way things that change, it's totally ripe for disruption and change, how would you adopt it? Well, it's pretty simple. You've just got so many different corporates that are looking to change things and looking to rate their suppliers. So imagine that you've got 5000 6000 suppliers, like a big agricultural company would have had that money. And you have to go and ask them to pay 1500 $2,000 Just to get rated. I mean, you just doesn't happen, right? It's just so hard to make it happen now, and you say, hey, look, here's this new open ESG system, which is there, you can also customize your questions. And it's, it's free.
And it's dynamic. So if you've changed anything, it's immediately reflected. And if you well, and if you lie about what you're doing, that's also visible, because everything you say he's going to be visible on a webpage. And then we can go and verify you later when we need to do the auditing process. So we've had corporates jumping, particularly in this current environment, when corporate spending has to be reined in, around booking be sensible with cash. It's a, I think it's the time is now it really is change.
I think the the economic climate can clearly help it. The other part, which can clearly help with this, probably media, if they if the data is free, and the you know, rating, kind of reviewing the ratings or reviewing the green washing, there's surely a bunch of journalists out there who would be more than happy to actually find their next scoop out of that public data.
Oh, that's right. Absolutely. And I think it's, you know, again, Aaron, and it's also about rewarding company is positivity isn't embraced enough.
Exactly. Going going forward. I mean, ESG has been in the headlines a lot in the especially in the US, I think, but also elsewhere. And not always for the good reasons, or at least not with a kind of the positive positive notes in the news headlines. What's your take on it? You know, is it actually positive for the sector? The the bashing ESG sometimes gets, because people actually recognizing and noticing it, or could it actually damage the industry for the good?
I think it's a very good question. Some of the criticisms of current ESG systems are very valid, right? As I said beforehand, it's closed. It's a It's not it's it's onerous, like the, the forms that come out of MSCI and others are just ridiculously huge. And it's very manual, like, you know, pay approach that, you know, Ico have advocated up to now is difficult. So I think there's some very, very valid criticisms, is it at the end of the day, the whole thing was set up, I want to help companies become more environmentally and eco conscious and showcase their How to Improve Your like from a social perspective and improve diversity in the workforce, but also ensure that you know, things like child labor and everything are removed out of your supply chain governance, and boy, do we need better governance after the scandals across here in particularly, I mean, looking at Silicon Valley Bank in first republic and, you know, FTX and everything, which is just fears of governance. I think that, you know, it's needed. I don't think anyone complaints about that and your biggest investors, the black rocks and Fidelity's and Blackstone's are all driving heavily on ESG because they know ultimately they have to do it. It really those guys that don't make sense. What I think is that things do need to change. And I think the open energy system, applying the principles of AI, web three to ESG world is exactly what's open and transparency is needed. Backup pretty dynamic is important data. It's really about where it is right now and how it needs to to go forward about it. So it's exactly industry before, to be honest,
Tarmo Virki 15:33
maybe I'm a little bit repeating myself. But if you would kind of look forward next 12 months, late 23, early 24, for what are the biggest challenges for the opening as GE?
Frank Meehan 15:47
Well, I think, you know, the challenge is going to, I'm hoping the challenge is keeping up, right. But the good is, everything from this, you know, you fill out this form, you send it off to EcoVadis. And they have these manual teams that check out everything before you ever get a score certificate. This way is all digital, it's all open. It's basically it's heavily, it's going to be heavily AI driven, in terms of helping to steal data. And it's an it's instant, you get the approach because you just get it instantly. So it's more digital approach. I believe that to be honest in keeping up with demand from what we've seen so far from the initial work before it goes live and the beta programs, it's it's probably keeping up with demand is going to be the issue is going to be tremendously exciting to stay on top of things from that perspective and bring AI into the picture in a way which the team working on. So I think it's one keeping up with demand or to staying on top of keeping keeping fresh and new as you keep going. Yep. And proving to everyone that you are open and transparent, which is the expert counsel and Tao system.
Tarmo Virki 17:01
Exactly. The using the doll system is sounds really, really interesting.
Frank Meehan 17:07
Yeah, yeah, that game changing, I think you have to use instead of the company like MSCI making up what the scores and systems are by devolving it to an expert Council, which is now like 50 people from around the world, you know, working on the system and developing it under a data structure and then voting on that. Using it's using discord. So it's, it works, it works very well. And that, again, gives transparency to the whole thing.
Absolutely. Also, Dow has had some setbacks, I think related to all the crisis in the crypto space over the last 12 months. But there are some really cool uses of Dow structure, like the one you guys are building on.
Yeah, I think the investor in masari can see ring genies, you know, quite heavily into the web three blockchain space, but never really got the, you know, the crypto exchange space, which I always felt was, you know, I just was like, What the hell's going on, and FTX pretty much showed in all the others three hours katritch that there was a lot of, you know, going on, to be perfectly honest, and Tao running your entire company, that's it is a difficult challenge. But the way that we've got in terms of an expert counsel Dow looking at a, a system that is going to then be implemented by a company that works well.
Yeah, one of the really interesting kind of related developments we've seen is the whole how, because of FTX, and all the other from one side FTX and all the other crypto exchanges, of course, crashed the crypto market last year. But from the other side, the kind of maybe the second level of those impacts on the actual Banks has crashed the banks and the bitcoin is probably around food for decades, again, or more these days, you know, talking about the crypto crisis when the bitcoin is at 30,000 is a little bit silly, or sounds at least a little bit silly.
Ya know, exactly. And but I just think, I do think, you know, crypto to one side, I think that just blocked staying on web three is tremendously exciting. And, you know, one of the other big things that I find very exciting, you know, being to climate and agriculture and food, you know, I feel like we just done a blue sequestration projects in Australia. We're looking at others around the world with soil and by biotech, in terms of carbon capture and soils, so tremendously exciting. What I think is going to be interesting is the tokenization of real world assets. And I think that's very exciting. That is another space that I predict, is going to be one of the biggest business sectors within the space because you could, you know, we're looking at, like how to finance climate projects, you know, physical projects, I think tokenization of that is really seeing MC last year, before the three aircrafts, it was honestly tokens was just about lending each other digital money, and it was just, I mean, it was just an arbitrage game that fully has blown up. Now, like going back to the principles of what blockchain in were all about, is good, right? That that pole arbitrage thing is gone, thankfully, and hopefully, you know, for a while anyway. And now, what a lot of people looking at is how to tokenize real world acids in particularly climate projects. That think is it's very exciting.
Tarmo Virki 20:59
Exactly. And, you know, in climate projects, also, also the projects related to reforestation, or afforestation, and the kind of the creating the natural carbon sinks and so on. There's a lot of interesting stuff going on in that sector.
Frank Meehan 21:18
Oh, tremendously, tremendously exciting. I mean, you know, the blue carbon stuff that we're working on sequestration projects, you know, soil, one of the things we're also we're being invested into this company through cultivators can be called Future feeds. In Australia, which is a seaweed supplements for cattle, you put, see, we've gone through the color process, developed by the CSIRO in Australia, and that, if you put that into the cattle feed, it reduces their meat by 60 70%. Now, there's another solution throughout the world, but this one just won a prize from Bloomberg. And it's doing really, really well. I think that these types of projects are tremendous means that you know, producing the seaweed or that project, and the production of that is the next stage that we're looking at. You know, as I said, owns robotics, anything that is really, really doing that on the ground, like what I am very heavy, very frustrated by a lot of corporates, just buying carbon credits and not actually doing anything to reduce their carbon. And I think that is changing. And I'm very proud of the Australian Government that has recognized that and has now literally putting into law, that you cannot buy terrible carbon credits anymore. There's a very strict rule if you're going to buy carbon credits, and you have very high incentive to actually make change in your organization to decarbonize, actually decarbonize. And I think, you know, you're good on the Aussie government for for changing that. But that's because what happened last year is the Australian Government was the original Australian government, which is totally anti climate, anti, everything was trying to stop everything was trapped by the Iranian people. And it was a climate driven election, and the new government was elected on a climate stance. And that has made a difference. And I believe that's going to happen in other countries. It's not just kind of in Australia, and when we feel it more than anything, but in some ways, Lula in Brazil, it was a similar a similar carbon climate, and the Amazon was quite a dominant factor in that election. And I believe that's going to continue to increase. I don't think the whole thing is back in the bag type. I think it's, it's gonna get better. It just needs better systems and better governance, like open ESG to make it happen.
Tarmo Virki 23:42
Absolutely. That's really, really, really good stuff. On the on the carbon credit side, also, I think the I think for me, personally, the biggest challenge has been the understanding that the most companies use carbon credits as the, the Catholic Church for selling indulgences in the medieval times that you've seen. Now you pay and you get the paper to say that they you know, your sins have been forgiven. I mean, that's basically the carbon offset market of today, right.
Frank Meehan 24:15
Oh, my God. Yeah. As a Catholic who went to Catholic school, a little my life, Jesuit school, having spent a lot of time in confession over the years. You know, some, you know, probably quite rightly, in there, it was great. It was fantastic to go, you know, when you're a kid to go into confession and walk away with few Hail Marys and be cleansed of your sins. And it's exactly the approach on it, right? Thankfully, though, you know, you've got you've got a better you've got a better understanding of that now. You know, I got I remember I was with I don't think that person is there anymore, but at a major shipping company a few years ago at this big plant. I've been down in Panama or something, and, and that's what they were doing to help the environment. And every year he'd take it city go down there three times a year to check out the, you know, check out the plantation to make sure it's going well and very proud about and I was sitting there thinking, okay, dude, like you haven't done anything in the shoe industry? Have you like nothing, and you've got this huge plant? Or is that you've using to offset the issues that you have with the ships? Plus, you're probably flying down there first class with half your team to check out Panama three times a year? Well, dude, like you're well ahead of the game here, aren't you? I think is companies starting to realize that that approach is, is just not going to work anymore. And that kind of honestly, like some of the people were cruising, you know, they were just like, oh, I don't really have to do anything this year. That's fine. You know, that that is going out the window, I firmly believe in a lot of stages. But also, you know, look, this is fantastic, positive energy, that I'm very positive about things. You know, to be honest, I know people are kind of negative about it. But you know, being in the industry, and seeing the change and things that are happening, great technology that's coming through, I'm very positive about it. Look at Texas, Texas is one of the most largest renewable energy states on the planet. Yet it's the hardcore Republican yet. It's very, very heavily into renewable energy. Ultimately, it's all going in the right direction. I believe it's some countries are going to take longer to get there than others. But I think, you know, look at look at the US the US is the Biden administration's push to subsidize heavily tree technology manufacturer and development in the US has changed the game. I was talking to a company that has been previously thinking about doing that in Europe. And they're like, No, we're gonna go completely set up in the US because the subsidies we get to start the business in the US is tremendous that hopefully, we don't end up with the same issues that Obama had with Solyndra and solar and all type of stuff we may do. But it's changing the game manufacturing is coming back to the US. And it's coming back around new battery, cheese and Evie tech technologies. I think that's fantastic. So I do think that changes are happening in the right way. And a lot of people say negative things, maybe probably largely from a clickbait perspective. If you'd read the Daily Mail every day you think the world is ending. But I genuinely think that it's not and that things are pretty positive.
Tarmo Virki 27:46
Thanks, Frank. That's a really good message to wrap up this podcast episode.
Transcribed by https://otter.ai