Introducing Wangari
Or why the finance world is still at odds with sustainability
Wangari is about doing the right thing. About creating win-win-win situations, where financial institutions, their clients, and the planet all win. Such situations have been created in the past, but are still too rare.
Wangari aims to help bring more capital to businesses that serve the planet by equipping investors to leverage the full power of non-financial data. Not only does this approach help investors make more money, but it also helps the planet heal from the various wounds that humanity has inflicted upon it.
Our name is an hommage to Wangari Maathai, a Kenyan activist and laureate of the Nobel Peace Prize in 2004. She is known for founding the Green Belt Movement to plant more trees to help society and the planet.
Maathai’s whole life is a testament to standing up and doing the right thing, even if it has uncomfortable consequences in the short term. She was the first woman in Eastern Africa to receive a Ph.D. She lost access to housing after being denied the right to run for a public office in Kenya. She got incarcerated for protecting a public forest.
Although her actions brought her personal and financial hardship on more than one occasion, Maathai never backed down from causes she knew were right. It is that type of strength that we aim to cultivate at our company Wangari. The financial world desperately needs such strength.
ESG is more than compliance. Much, much more.
When financial professionals talk about sustainability, they often talk about ESG investing. This stands for environmental, social, and governance. It is not the same as sustainability, but encapsulates the key concepts of sustainability closely enough.
There is a general consensus in the community — although individual opinions might differ — that the climate crisis, various social issues, and governance challenges require financial innovation. This innovation must result in a reallocation of capital from assets that damage the planet to more sustainable assets. This, in fact, is a core belief at Wangari.
Regardless of this concern, many other financial institutions view ESG as a regulatory burden. Small financial institutions in Europe, for example, are rushing to make sure that they are only serving clients that satisfy a lower bar for ESG, and that they are building products that are aligned with newly issued European regulation.
Indeed this is a major challenge for smaller financial players. Regulations are changing very fast in Europe and elsewhere because politicians seem to have finally woken up to the urgency of the climate crisis. On the other hand, many ESG frameworks are still underdeveloped, which makes compliance to these new regulations rather tricky for smaller players that do not have the capacity to create their own frameworks and methodologies.
All of this workload is stacked on top of the challenges from rising interest rates and other economic pressures. Many small banks feel like they’re being asked to shoot a moving target without a gun.
On the other end of the spectrum, financial giants like BlackRock are rolling back their ambitions on ESG. This fall comes merely months after peak ESG-time, which was a very in-vogue subject over the pandemic years.
This does not mean that BlackRock and other investment firms are no longer pushing ESG forward; many employees at these firms work on precisely this. It seems, however, that ESG has become too politicized in the run-up for the 2024 presidential election in the United States.
In addition, ESG-related assets have recently become financially uninteresting compared to more traditional assets. This is due to a flurry of other factors, including inflationary pressure, the boom in oil prices, and a heyday in the defense sector.
This explains why, as of 2024, ESG is quite unpopular in the financial world. However, there are other factors that make this a long-term concern which might not ease off once (geo)political issues have softened.
Why finance has been unable to truly embrace ESG
Against this macroeconomic backdrop, financial institutions are unable to use ESG for their own — and the planet’s — benefit.
At face value, this seems odd. New regulations all over the world are starting to require that many companies disclose their ESG performance every year. This so-called non-financial data should be a boon to investment firms. The more information they have at their fingertips, the better their investment decisions can become. The better their decisions, the more money they can return to their clients and the more money they can collect in fees.
For this, the virtue of ESG is not important. If, for some reason, investors find a positive correlation between methane gas flaring and future profits of energy companies, then it makes financial sense to invest in more energy companies that emit methane (and hence warm up the planet). This is a hypothetical scenario, and we do expect most correlations to be positive both for ESG- and financial metrics. In any case, the added datapoints should help them make more money in the near term.
Investors are not even getting to the point of generating such insights, however. Investors are buying ESG data products, but these are so incoherent, difficult to track, and hard to process that many do not even try to use them. The data, albeit messy, is there; the data processing capabilities are not.
Apart from the fact that these data points are messy and unstructured at best — and inaccurate at worst — financial analysts do not have the time or the necessary training to make the most of them.
Coming from a finance background, units like metric tons or gender pay ratio do not neatly fit inside the models that analysts create. In many financial institutions, there are ESG teams that employ data scientists and ESG specialists to make sense of this data. These, however, do not have enough contact to financial analysts in their day-to-day routines to make fruitful collaborations work.
This gaping divide between financial analysts and ESG specialists, against the backdrop of rapidly changing regulation and uncertain macroeconomics means that ESG isn’t being used to its full potential.
There’s a gap for innovative financial modeling
With regards to the long term, there is a growing consensus among financial professionals that ESG is the driver of both risk and return. Firms that perform poorly in ESG have a higher disaster risk and a lower chance of being able to seize emerging opportunities.
To illustrate ESG risk, consider two nuclear plants. Plant A prioritizes the health and well-being of its employees. Plant B cuts costs wherever it can, and hence doesn’t have the capability to offer health insurance or paid time off to its workers. Plant B evidently runs more risk of causing a nuclear disaster because the workers are more prone to commit human errors and not react quickly enough if early signs of a disaster show. Being less socially committed is therefore making plant B a more risky investment.
For the return side, consider a gold mine that uses less toxic chemical extraction processes than the industry average. It might have above-average operating costs, but will also be more attractive to local authorities, talented employees, and ultimately customers. This means that a more sustainable gold mine might cost more in the short term, but also generate more revenues in the mid- to long term.
Although this is conceptually clear, it is quite difficult, in practice, to inform financial models with such insights. How is the chemical toxicity of a chemical plant measured? Does it drive revenue, or does it also lower the cost of capital? What about working capital? And is the data about the toxicity reliable?
These are precisely the questions that Wangari tackles. We aim to bring accounting and investment intelligence to the next level by incorporating so-called non-financial data into existing financial models.
Investors deserve to make the most of their data. This is necessary so that investors, their clients, and the planet can win.
From Wangari to Wangari Digest
At Wangari, we’re constantly analyzing different firms, developing methodologies for bringing ESG into accounting, calculating business values, forecasting financial trajectories, staying up to date with ESG regulation and ESG news from all over the world, and through all of this make sure that we serve our clients, their clients, and the planet.
If the models we are building live up to our expectations and profits were all we wanted, we’d keep our insights to ourselves, build our own investment fund, and continuously beat the market.
But we want to do the right thing. We believe that investors and, frankly, the world, deserves our insights.
We can’t give everything away for free because we need to make a living too. But we can distill some of the most surprising, insightful, and exciting pieces of knowledge into stories for everyone to see. That is, free subscribers get a free preview; paid subscribers get deep analyses.
That is Wangari Digest for you. A distillation of some of the best that Wangari has to offer and can disclose to the public, brought to your inbox every Tuesday and Friday.
If you want us to help you with your fund or get engaged at your firm, contact us at contact@wangari.global and we’ll be in touch.
Doing the right thing, together
The world will not be saved by finance alone. Regulations have a huge role to play.
Finance, however, is missing out on one of the largest opportunities in history to make more profit. Thanks to changing regulations, there’s a wealth of data newly available, and all that investment firms need to do is make sense of it.
Whichever investors make sense of this data first will not only beat the market but also do some good for the planet. It’s our responsibility to make sure we create as many winners as possible.
Thank you for doing the right thing with us.