As the HKMA institutes more stringent ESG - environment, social and governance - compliance this year, regional investors will be looking to the likes of Hong Kong-based data analytics firm MioTech to screen potential investments.
Ever the bellwether of regional investing trends, Li Ka-shing’s VC firm Horizon Ventures injected an undisclosed amount in MioTech earlier in the month. This is the private investment vehicle’s second time investing in the startup after contributing $7 million in 2018.
The startup joins Horizon Venture’s stable of high-profile investments, including exits in social media site Facebook, music platform Spotify and workplace messenger Slack. The fund led American imitation meat producer Impossible Food’s $300 million Series E round in May 2019.
Starting life as a general financial data aggregation and analysis service, the company soon realised ESG was where the money was at. After narrowing its focus, MioTech's client base doubled last year to 50 companies, mostly fund managers, keen to stay on top of regulatory issues. Most of its clients are based in Hong Kong, mainland China or Singapore.
“As a startup, you need to have a clear mission statement and sustainable finance is crystal clear,” MioTech founder and CEO Jason Tu said in an interview with FinanceAsia.
LACK OF ESG TRANSPARENCY
Asia is a patchwork of data reporting standards and more than half of investors struggle with a lack of ESG data and comparability between companies, according to a PRI survey of global investors in 2017.
In many cases, there is a will but not a way. A survey of Chinese CEOs by KPMG found that climate change was their primary concern last year while in August 2019, the HKMA - with more than HK$4 trillion in assets - announced its decision to implement ESG principles moving forward.
Adhering to these sustainable finance principles requires coherent information - something that is in short supply. MioTech is looking to benefit from the overlap between growing ESG awareness and an uptick in AI solutions among investors.
“Our speciality is leveraging alternative data to get a more objective perspective and we have many technical mechanisms to validate data,” Tu said.
The startup uses an artificial intelligence platform to evaluate data on more than 800,000 companies in Mainland China and build reports with more than 130 data points ranging from product recalls to fair pay and death toll.
“Out of the datasets that we gather, companies’ voluntary reporting only takes a very small percentage,” Tu said. He attributes this to the fact that CSR - corporate social responsibility - reports are unaudited, putting their veracity into question.
The push to take ESG far more seriously has come from the West, Tu said.
“People are demonstrating in Europe and the younger generation is very environmentally-aware.” This activism has put more pressure on North American and European companies to disclose and improve their business practices.
In comparison, Asian investors and companies are late to the party. Only 31 Chinese firms and asset owners signed the UN-backed Principles for Responsible Investment (PRI) which focus on sustainable investing practices, compared with 217 in France and 474 in the United States.
“The ecosystem around impact investing has developed and become more sophisticated,” PRI’s Head of Asia James Robertson said at the 2020 Private Equity Forum in Hong Kong in January. Globally, PRI signatories held more than $90 trillion in assets under management as of September 2019, up from $59 trillion in 2015.
ENVIRONMENTAL RESISTANCE
Hong Kong is at the epicentre of resistance to ESG regulations, according to an Economist Intelligence report on ESG disclosure in Asia. However, local companies will soon be forced to see the light. As of July 2020, the HKEX is set to implement mandatory ESG disclosure requirements among listed companies according to a report released by the financial exchange following a period of public consultation.
While 89% of corporate and interest group respondents were in favour of the move, which will require companies to publish ESG reports within five months of the end of the financial year, not everyone was pleased.
Opponents of the new disclosure regime include CK Hutchison Holdings, founded by none other than Li Ka-shing. “Many individual shareholders view such reporting as wasting company resources,” the firm wrote in its response to increased ESG oversight.
MioTech will be putting some of the proceeds from its most recent capital raise to build a more compelling product. “We are expanding and putting more than 60% of funds into research and development,” Tu said.
Of course, MioTech is not alone in embracing AI solutions for ESG reporting. The Economist found that all pension funds surveyed used AI always or often for ESG screening, while investors at asset and wealth management funds relied on the technology 86% of the time.
“Mandatory reporting will not have a huge impact on our data collection process, but it is a good signal to the market that ESG is very important,” Tu said.
