Novata: bringing the ESG revolution to private markets


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Private companies have been largely excluded from the ESG conversation, writes Alex Friedman, CEO of Novata.

The time of dreams

About the Author: Alex friedman is CEO and co-founder of Novata.

Three major levers have historically moved the world: religion, government and capital.

Each, at different times, has been a force for change for the better or to the detriment of society. With all eyes on COP26, perhaps the most critical climate summit of our time, the words of Greek mathematician Archimedes echo the past: “Give me a long enough lever and a fulcrum on which to place it.” , and I will move the world. “

We have seen that religion and government are not the levers that will allow us to successfully fight against climate change. Instead, it’s time we used the missing leverage of capital to move our world in the right direction.

Attention has increased to the role of environmental, social and governance factors in doing business, with an emphasis on finding out what state-owned enterprises are doing to our Earth and to society as a whole. The implicit logic is that business can be a positive or a negative force. Since they organize entities for huge concentrations of people and capital, they have a big role to play in meeting our challenges. As the pressure on public companies has increased, we have seen welcome changes in corporate behavior, including net zero liabilities, increased transparency on issues such as pay gaps and diversity. increased number of boards of directors and management teams.

But the leverage of capital which only concerns the public markets is not long enough.

There are less than 100,000 public enterprises in the world today. But there are over 200 million private companies, accounting for the vast majority of jobs, in addition to a large chunk of global GDP.

And yet, private companies have been largely excluded from the ESG conversation.

The reason is simple. When a company is private, there is less pressure on its owners to bring transparency to their practices. There is also less clarity around important ESG metrics and limited ways for private companies to benchmark practices against peer groups, as data is not collected accurately or widely shared. And if you can’t measure something, you can’t change it.

The three letters of the ESG represent a problem of tragedy of the commons. It requires people and organizations that don’t necessarily work together to team up.

In the spirit of Archimedes’ words, an unlikely consortium has come together to address this challenge, comprised of some of the world’s leaders in social justice, financial data, private markets and inclusive capitalism, as well as a range of the best private equity in the world. companies and investors. These companies represent billions of dollars of capital in private markets, control some of the world’s most important data, and own hard-hitting private companies around the world.

Together, they formed Novata, a utility company designed to strengthen capital’s long leverage in private markets towards ESG efficiency.

Novata has three parts: a simple way to determine important ESG metrics; a secure contributory database to store and track this data, where the contributor controls who has access to the information; and a set of tools to objectively compare data to industry peers and report progress to stakeholders. When it comes to measurement, one size does not fit all. This is why we have built an “on-ramp” approach to ESG with an open architecture, allowing any private company to easily customize its ESG reports, if they wish.

Today, Novata closed its first institutional investment cycle, possibly the largest ever for a public benefit company. The unique public-private consortium that formed Novata — the Ford Foundation, the Omidyar Network, S&P Global,

Hamilton Way

and a number of leaders in the private equity industry – are charting a way forward that has never been attempted before: to build a self-sustaining business designed first and foremost to be social good and supported by moral and economic drivers of all horizons of society.

If we succeed, we believe that Novata can be a lever of good worthy of the Archimedes ideal, and a model for a new, more inclusive form of capitalism.

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