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In the field of sustainable development, the quest to measure and assess environmental, social and governance (ESG) impacts faces complex global challenges. This is work that extends beyond the books of publicly traded companies and into the broader corporate world.
Reflecting global corporate emissions, only about 17 of the approximately 40,000-45,000 publicly traded companies (estimated by the World Bank) report direct greenhouse gas emissions or Scope 1 emissions. It is worth noting that %. Although this proportion may seem small, these companies actually account for 74% of Scope 1 emissions of all publicly traded companies. However, while some may think this range is sufficient for informed action, the real challenge lies in the reliability of the reported numbers.
Data discrepancies and discrepancies raise questions about data accuracy and highlight critical gaps in our understanding and ability to effectively address business contributions to greenhouse gas emissions. A 2022 study by Clarity AI noted surprising inconsistencies in these reports, with more than 13% of data points showing a difference of more than 20% when compared. This raises serious concerns about the accuracy of reported data and undermines investor and stakeholder confidence in sustainable strategies.
This story extends beyond carbon emissions to broader ESG assessments. These assessments are critical to guiding sustainable investments, but they often walk a tightrope between risk mitigation and true impact. Despite scoring high on his ESG indicators, companies can leave a net negative footprint on the environment and society, challenging the very nature of sustainability. This issue is essentially related to the global pursuit of the Sustainable Development Goals (SDGs), which are widely used by investors as a framework for impact investing. Without accurate, transparent, and truly impact-driven measurement, there is a risk that capital will flow to ventures that simply tick the ESG box without meaningfully advancing the SDGs.
As the international community grapples with these issues, the International Sustainability Standards Board (ISSB) and the European Union are laying the foundations for more standardized and comprehensive reporting through the Corporate Sustainability Reporting Directive (CSRD). , which is expected to launch in the next few years. . However, harmonizing these standards across different global companies remains a daunting task, especially for multinational companies that span different regulatory environments.
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Against this backdrop, there is also a growing consensus that ESG disclosures must be subject to the same rigor and scrutiny as financial statements, and require robust systems and methodologies. The evolution towards more reliable and widely accepted ESG reporting is not just a step, but a leap forward in aligning corporate behavior with the lofty goals of frameworks such as his SDGs.
Companies like Clarity AI are at the forefront of this change, employing advanced technologies such as artificial intelligence to enhance the accuracy and depth of sustainability data. Founded by Rebecca Minghella in 2017, Clarity AI was born from work developed while the founder was pursuing his MBA at Harvard Business School. The idea was to go beyond the superficial image of corporate sustainability to truly assess the sustainability impact of a company’s core business functions and products. This foundational work led to his Clarity AI’s unique approach in the ESG space, focused on improving the accuracy and transparency of sustainability data.
Rebecca Minghella, Founder of Clarity AI. Source: Clarity AI
Today, Clarity AI has a significant presence in the market, with a network of investment industry clients managing over $50 trillion in assets. The company also reaches more than 150 million consumers through collaborations with platforms such as Klarna and Aspire. Recognizing its cutting-edge approach, Clarity AI has earned accolades from Forrester, Investment Week, and the World Economic Forum, and has secured significant funding since its inception. The company’s latest funding round includes a $50 million investment from SoftBank Vision Fund 2, BlackRock, the Fifth Wall Climate Tech Fund, or Sir Jonathan Ive, Apple’s former chief design officer. , and its valuation soared to $450 million, confirming its innovative influence in the world. The area of sustainable investment.
The urgency of impact measurement: Clarity AI’s call to action
Clarity AI stands out for its innovative use of artificial intelligence (AI) and machine learning to address common issues in ESG data reporting, including human error, inconsistent classification, and incomplete disclosure. Masu. We leverage machine learning algorithms developed with input from sustainability experts and employ advanced natural language processing (NLP) techniques for data collection. This approach expanded his coverage from 19,000 companies to more than 70,000 businesses, 430,000 foundations, and 400 national and local governments. Clarity AI’s platform is unique in its ability to offer fully packaged sustainability technology solutions to customized solutions for specific needs. This flexibility allows us to address a wide range of use cases and customer types, from investors to consumer platforms, and support their decision-making processes and reporting requirements.
Clarity AI’s joint efforts further advance its mission to strengthen sustainable investment practices. A notable partnership with GIST Impact focuses on biodiversity assessment and reporting. The partnership aims to help clients identify exposures to companies that negatively impact biodiversity, a key element in mitigating environmental risks. The partnership is company-specific, geographically precise, and covers a wide range of factors impacting biodiversity, aligned with the latest regulatory developments such as SFDR and the Task Force on Nature-Related Financial Disclosures (TNFD) recommended disclosures. reflects Clarity AI’s commitment to providing data that ).
Most recently, the Global AI Summit in Riyadh highlighted the growing importance of AI and data in various fields, including sustainability, and Clarity AI’s recent work with key Saudi institutions , underlines our commitment to this objective. Saudi Arabia, a traditionally oil-dependent country, is currently working hard to diversify and adopt sustainable practices as part of its national transformation program. Minghella said: “Advances in the areas of ESG and sustainability are an important part of Saudi Arabia’s national transformation program, and are a key part of Saudi Arabia’s national transformation program. There is a clear commitment to building a business ecosystem that rewards people.”
Rebecca Minghella, founder of Clarity AI, speaks at a panel discussion at FII7 in Saudi Arabia. Source: Clarity AI
In collaboration with Saudi Tadawul Group, one of MENA’s leading stock exchanges with a market capitalization of nearly $3 trillion, Clarity AI focuses on strengthening data-driven, sustainable business practices and transparency. and will provide environmental and social insights while promoting accountability. business practices. It aims to educate local businesses on sustainability issues and assist in monitoring and reporting compliance with national and international frameworks.
Clarity AI’s platform helps combat “impact washing” and enhance ESG and net impact insights across various asset classes. Its approach is seen as an important step in mainstreaming impact assessment and integrating it into the broader financial industry. The platform’s scalability and comprehensive coverage make it a valuable tool for investors and other stakeholders to make informed decisions that align with social and environmental goals. Clarity AI’s strategic partnership with BlackRock, a key investor in the company, reflects the demand for such solutions, as evidenced by the integration of Clarity AI’s advanced capabilities into BlackRock’s Aladdin platform. It highlights the growing trend of
This integration will enable Aladdin’s clients to comprehensively evaluate a wide range of companies, meet disclosure requirements, and build portfolios that prioritize sustainability. With its pioneering technology, influential partnerships, and extensive data coverage, Clarity AI is revolutionizing sustainable investment practices. Clarity AI addresses today’s ESG assessment challenges by providing accurate and actionable insights into the environmental and social impacts of diverse actors, moving investment practices towards a sustainable and transparent future. We are preparing for. Clarity AI emphasizes the urgency and importance of starting impact measurement immediately, laying the foundation for continuous improvement and more informed investment decisions in the future.
Clarity AI has also introduced consumer-focused sustainability to its services. Klarna is a Swedish fintech that offers online financial services such as in-store payments, direct payments, and post-purchase payments. This year, we introduced the Conscious Badge in the Klarna app in response to growing consumer demand for transparency on the environmental impact of their purchases. Through Clarity AI technology, electronics brands can earn up to five badges based on greenhouse gas emissions and renewable energy use.
Explore how impact investing connects capital with positive social and environmental outcomes. Read our special report on impact investing here.
This article was originally published on Lucidity Insights, Entrepreneur Middle East’s partner in developing special reports on the technology and entrepreneurial ecosystems of the Middle East and Africa.
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