A flock of Finnish IT geeks are well on their way to making life easier for investors worldwide – and significantly more difficult for companies trying to sweep their negative footprint on the world under the carpet.
In 2023, Upright launched its database, which gives users free access to an X-ray of more than 10,000 companies’ positive and negative impact.
Established in 2017, the company has for years also provided impact data on funds to investors like EQT, LGT Capital Partners and APG.
In September, Upright updated its public database with this fund-level data, sharing impact quantifications for35,000 mutual funds and ETF’s.
And now the Finns have added data on private equity and venture capital funds, including their unlisted portfolio companies.
“It is becoming increasingly difficult for companies to stay out of the public eye,” says Mikael Homanen.
He is the man behind the X-ray metaphor.
Mikael Homanen is head of research, innovation and partnerships at Upright and, before that, held data and analysis positions at the World Bank and PRI, working to realize the UN’s principles for responsible investment.
Before Upright came along, we were dependent on the information that the companies voluntarily provided about the effect of their activities, explains Mikael Homanen.
“This is where we have always had challenges, because the responsibility lies with the companies. It is difficult to get access to data, and when the companies are the ones reporting, incentive problems also arise,” he says.
Upright has radically changed that.
“We focus exclusively on the impact of companies’ core business, not their internal processes or disclosures. For over seven years, Upright has been modeling the impact of products and services. This means that the story the company tells is not decisive. The only thing that matters are the basic facts about the companies’ products and services,” says Mikael Homanen.
Upright’s method combines advanced analysis of business models and products with evidence-based data. This makes it possible to shed light on companies’ activities and create a more accurate picture of their impact on society and the environment.
“Of course, companies can still provide valuable information, but much is missing, and some data we never had – until now. The X-ray image gives us extra data,” says Mikael Homanen.
Upright’s five technological building blocks
In order to build its database, Upright has had to obtain different types of data from a multitude of different sources.
Here, Annu Nieminen explains the four most important building blocks.
1: A simulation of the global private sector
We have built a simulation of the entire global private sector, which means a network of all the products and services that can be traded on the global market. There are currently 150,000 nodes in the network.
One of these products could be a soda which is sweetened with stevia and sold in a reusable aluminum can.
We have mapped this product’s supply chain – both upstream and downstream.
First, we mapped out what is needed to make the product: stevia, aluminum, colourings, and so on.
Next, we have mapped what happens to the product after manufacturing. That is, whether it continues through a fast food restaurant, a retailer and so on.
2: Impact profiles on 150,000 products
We have built an impact profile for each and every one of the 150,000 products in our simulation.
In order to do that, we have taught a computer, a neural network, to understand the relationships between words and concepts and classify them.
With machine power, we thereby read hundreds of millions of scientific publications and learned about the health implications, environmental implications, social impact and so on of the individual products and services. We then link these individual products and services to each other to map value chains between them.
3: We profile all the companies
Based on what products and services a company produces and how much these individual products contribute to the company’s total revenue, we draw a full impact profile of each individual company in our database.
4: We collect the companies’ own information
We collect all the information provided by the companies themselves and cross-check it with the data included in our own database.
5: We aggregate company-level data to quantify fund impact
When we have impact data on companies, we can expand our insights to fund level based on the funds’ holding companies.
And then it takes into account the situation where companies have no incentive to voluntarily submit their data – or do not have the necessary data.
“Philip Morris probably wants to talk about its climate initiatives, but not about the health consequences of their tobacco products,” says Mikael Homanen:
“And not all companies have the resources to know their full impact either, especially when it is upstream or downstream in the value chain.”
BankInvest is in the black
In September, Upright updated its database with data on 35,000 mutual funds and exchange-traded funds, so-called ETFs, which, like stocks, are traded on exchanges. This means that you can now analyze and compare the overall impact of each individual fund and get a clear overview of their contribution to sustainability.
If you search BankInvest, which is owned by 39 Danish banks and manages assets of almost DKK 180 billion, you will find a wide range of investment products in the database.
For example, if you bring up the “Danske Aktier A” portfolio, data shows that it has a positive impact overall, with the biggest positive drivers being investments in health, driven by holdings in companies like Bavarian Nordic and William Demant. At the same time, emission of greenhouse gases is the most significant negative factor.
According to Upright’s data, the portfolio is most in line with Global Goals 3, 8 and 9, which are about health and well-being, jobs and growth as well as industry, innovation and infrastructure. On the other hand, it has less connection with SDGs 13 and 14, which focus on the climate and life under water.
The database also reveals how the investments match the EU’s taxonomy that assesses the sustainability of economic activities.
Impact council: This could be groundbreaking
At the organisation Invest for Impact Denmark, director Birgitte Frost Mathiesens claps her hands.
“Anything that brings transparency creates security. And the investment market responds well to that, so such a database can certainly help to mature the market,” she says.
Today, only 3.2 percent of the total investment capital in Denmark goes to impact, one shows a report published by the organisation earlier this year. And that figure must go significantly up.
A database like Upright’s can contribute to that, Birgitte Frost Mathiesen hopes.
Currently, there is a lack of data on companies’ impact, and according to the report from Invest for Impact Denmark, the Danish investors themselves proclaim common principles, standards and KPIs as one of the biggest barriers to more impact investments.
“If Upright can generate new data that enables us to decode the social and environmental impact of different business models and compare across, then I really think it is groundbreaking,” says Birgitte Frost Mathiesen and adds:
“I am very interested in learning more about that. Because if they can solve that problem for the market, then that’s really great.”
New update includes private equity
Yesterday marked the newest update of Upright’s database.
It contains data for 1,000 private equity and venture capital funds and approximately 20,000 portfolio companies.
“Adding 1,000 private foundations might seem like a minor expansion. But it is important because access to information is more limited in the private markets than when you look at listed companies,” says Mikael Homanen.
In this way, the newest expansion also marks a new break.
“Small and niche businesses are often difficult to analyze due to limited sustainability disclosures being available, and some choose to remain private to avoid public attention. That is why it is exciting that we can now create transparency for private foundations,” says Mikael Homanen and adds:
“This extension improves the ability to benchmark funds against each other. The more data we have, the more valuable it becomes for investors to compare what positive impact actually looks like.”
For Upright, the task now is to bring data to life so that it can shape future investment decisions.
“For me, the future is not only about the investments we make, but also about the companies we choose not to finance, because we know their potential negative impact,” says Mikael Homanen and adds:
“I hope we can put an end to the conferences that always end with us concluding that we don’t have enough data. Now we have data. The question is what we will do with them.”
