A third-generation entrepreneur explains how his company brings the two together (Hint: It’s not about ESG).
Frank Tobé is a “Swiss army knife of entrepreneurship,” says Robert Rubenstein of TBLI Group. “He does many things in many places.” Tobé is co-founder and CEO at Supernova, an AI-enabled marketplace to help investors find, understand and act on sustainability data without friction. He comes by his innovative approach naturally; his family history is a multi-generational study in adapting to change in finance, moving from traditional commercial capitalism to philanthropy to impact investing over several decades. In a recent TBLI Talk presentation with Rubenstein, Tobé described how clarity about ESG data and its use can be a valuable tool for an effective sustainable investment program. His comments have been lightly edited for length and clarity.
Back in the ‘50s, my grandfather started a self-service supermarket in The Netherlands which was absolutely disruptive. After the war, he worked in his father-in-law’s grocery store, and in those days, service was counter-based, so you walked up and asked for three potatoes and a bag of sugar. Somebody would get that order, put it in a paper bag, and hand it over to you. My grandfather had no background in the grocery business or in entrepreneurship at all. He just thought there must be a better way: “Let’s pre-package all this stuff and put it on shelves.” The shop became one of the first self-service shops in the Netherlands. It was an instant hit, becoming a supermarket chain. In the ‘70s, he applied the same idea to pharmacies, which were also old-fashioned counter-based shops then. He built that idea into a large chain with 3,000 stores and 25,000 employees by the ‘90s, when he passed away.
After his death, his children decided it was time to sell the company and use that money to address the key issues of our time: a broad concept at the time but in the past 20 years that idea has converged into something more clearly defined. We started by giving away money to anybody who needed it: schools, water towers, MRI scanners — you name it. Then they started realizing, slowly, on that journey, philanthropy is nice, but you have to come back every year to put in more money. So, we started looking for an economic basis for our activities. We combined a commercial venture with a philanthropic one, so we had a bakery and a school, for instance — the bakery would fund the school. This didn’t work. Because when the bakery was doing well, the baker would say, “I want to open another bakery to make more profit.” But we’d say no, you have to open another school. So that didn’t quite fly.
Then we said: “Why don’t we work according to a clear set of rules which have been laid out by private equity and the venture capital industry?” We take a share in a company, provide an entrepreneur who can prove he has traction with capital, and he can grow a business that can be scaled, that’s the most important thing.
ESG is the biggest global misunderstanding… in the history of the financial industry
That released us from the philanthropic model. Today, we have a private equity fund that has been skewing toward VC over the past four to five years. It’s based in Nairobi, investing in proven business model, growth-stage startups that solve a problem. We have done that with varying degrees of success. I currently serve on the board of that fund.
In addition, about seven years ago, we realized that the landscapes these businesses were operating in were under a huge amount of pressure, from population, climate change, and misuse of resources. There’s a biodiversity crisis raging. We said, “we need to do something about this as well.” So, we went back to philanthropy and set up a conservation fund to protect forests and wetlands in sub-Saharan Africa and Latin America. These investments may never pay you back directly in cash but at some point, they probably will.
I work as a sort of traveling communications manager to talk about what’s going on. I realized there’s a big difference between expecting from your investments merely a financial return and in expecting an impact, some sustainable progress from the way you allocate your money. That requires a different kind of reporting, a different kind of story and knowledge. And that knowledge was always lacking. So, I started doing that for my own family first. How can I tell the stories about what our businesses are doing on the ground in Africa, how are they changing lives and improving the environment?
That set me on the course of impact and sustainability data and communications and where they overlap. That’s what Supernova is about. It’s a company that helps investors aggregate and service metrics that are relevant to their sustainability objectives, and, on the other side, helps companies collect and share those metrics with investors. They meet each other on our platform.
I think ESG has become the biggest global misunderstanding to have taken place in the history of the financial industry. Most of the trouble is that we have a very new, burgeoning field with very different definitions and expectations of what ESG means. So, people start naming things that you might have a very different perception of what they mean than I do.
Supernova…is a company that helps investors aggregate and service metrics that are relevant to their sustainability objectives, and, on the other side, helps companies collect and share those metrics with investors.
Back in the day, ESG started as a genuinely idealistic pursuit to exclude companies that didn’t have a union, to exclude companies that were thought to exploit their workers. Out of that came an industry of selling information about which companies did or didn’t have a union. But the people who started those businesses realized that the information was much easier to sell if you could sell it as something that would help you make more money — and the idea of financial materiality was born. They took portfolios that already existed, and retroactively applied metrics and numbers and all sorts of stories to make some half-baked case for sustainability and then sold the thing at a premium.
If a company has certain safeguards on environmental, social, and governance issues, it stands to outperform the market. That’s where a misunderstanding arose. If something is financially material, you should probably have already been considering it from the start. That has nothing to do with sustainability or impact on the world. The difference between ESG and sustainability is this: the impact of the world on a company is ESG, measuring how it relates to the bottom line of the business that you’ve invested in, and sustainability is the impact of a company on the world — that might not be material to the bottom line.
I’m interested in sustainability, in helping investors allocate capital toward companies that are not just managing their risk well but are making a difference in the world on a key issue.
Measuring the impact of the world on a company — just that — gives you a very narrow view. Companies can be doing very unsustainable things that manage the risks really well and get away with everything else very well. That’s why ExxonMobil has been in the top ten of ESG companies for years. ESG is a risk strategy that is perfectly fine to adopt. It remains to be seen if it gives alpha but in 20 years, we’ll probably see that it does. But we must not conflate it with sustainability.
The approach that we’ve taken, we’ve looked at sustainability. We are not in the business of ESG although I think there are very good ESG raters out there. But they must fight among themselves for who has the best ratings because the parity between these ratings overall is about 50-50. I’m interested in sustainability, in helping investors allocate capital toward companies that are not just managing their risk well but are making a difference in the world on a key issue. This is what European law says about sustainable investing: the company or the portfolio must have a sustainable objective. It must be working toward something that makes the world better. It should mitigate climate change, address the biodiversity crisis, and deal with income inequality. This is what we’re looking for in a product we can call sustainable.
What we’ve built at Supernova to make sense of data — to make sure you’re looking at the right metrics first — is an engine to say “okay, I’m going to put in my sustainable objectives”— and then we use AI to map for the metrics and the insights that you need to be looking at to track whether you are achieving your objectives. That’s from the investor side. From the company side, we do the same thing. Then the data ask from investors and the data offer from companies meet each other. So, to me, the key to unlocking clarity on ESG data and sustainability is the age-old lesson: to know where you are going.
The “TBLI Talk” series is presented by the TBLI Foundation, serving the global ESG and impact investing communities through conferences, educational services, investor research and tools. Its mission is to increase understanding and awareness of the benefits of a value(s) based financial system and thus help mobilize money flows into ESG and Impact investing to ensure a brighter future.