NTN Holdings: Investing in Resilience
About NTN Holdings
NTN Holdings is a private, diversified impact fund that invests in innovative technologies that are driving ‘the resilience revolution’. Everything NTN Holdings does - whether in investments, operations, outreach, or advisory work - revolves around resilience.
How does NTN plan on staying resilient? By staying ahead of the game with ESG and impact data intelligence.
The Challenge: Selecting ESG+Impact Metrics
For a fund that is just starting out with ESG and impact measurement, the first important question is - which metrics should I select to evaluate the environmental and social performance of my investments? In selecting its metrics, NTN had a few priorities that it needed to balance in the process:
1. Capturing common metrics across a diversified portfolio
2. Aligning to an evolving set of standards and frameworks
3. Ensuring that selected metrics are meaningful for portfolio companies
4. Selecting metrics that are appropriate to companies' stages and anticipated data availabilities
5. Establishing an ESG and impact measurement foundation to build upon
To address these challenges, NTN partnered with Proof to select a starting set of meaningful metrics aligned to the leading ESG and impact standards and frameworks. In addition to meeting the reporting needs of NTN’s investors, the metrics were designed to appeal to the portfolio companies as well, to ensure that data collection was meaningful and actionable in the companies’ own capital raise, marketing, and analysis efforts.
Proof’s Core ESG and Impact Benchmark metric set was the perfect fit for NTN. Informed by the Sustainable Finance Disclosure Regulation (SFDR) and a series of other leading frameworks, the Proof metric set includes the top ten most popular ESG and impact metrics globally. The metric set maps to the most common indicators from the Sustainable Development Goals, Data Convergence Project, 2X Challenge, SASB, and IRIS+.
At NTN Holdings, we're guided by a core principle: that one measures what one values, and that only what is measured can be scaled. This is why we prioritize impact and sustainability measurement and aim to lead by example. Our commitment to simple, streamlined, and benchmarkable impact metrics is key to the success of our impact- focused fund, enabling us to make better investment decisions and drive positive change throughout the whole of society. -Karl Wagner, CEO NTN Holdings
Spotlight on: NTN Holdings portfolio company
→ Emrgy provides clean energy alternatives for their commercial clients by creating a distributed web of hydropower installations in canals and water sources all over North America. Emrgy enhances resilience for its clients by ensuring steady, unmitigated renewable power generation.
Emrgy: https://emrgy.com/
Spotlight on: NTN Holdings portfolio company
→ TerraCO2 is leading the way in low-carbon cement replacement. For every ton of cement displaced by a Terra product, a 70% reduction in CO2 emissions is achieved. TerraCO2 is forging the way for low-carbon alternatives in a high greenhouse gas-emitting construction industry.
TerraCO2: https://terraco2.com/
SFDR: The New Baseline
SFDR is a European regulation designed to promote transparency in sustainable investment. It is quickly becoming the minimum ESG standard for private capital owners and managers. SFDR metrics, or Principle Adverse Impacts (PAIs), are standardized by the regulator and map to many of the existing voluntary frameworks, making them easy to understand for investors and companies alike. SFDR covers the most common social and environmental impact areas, such as greenhouse gas emissions and gender equity, making it a replicable and benchmarkable metric set.
By adopting SFDR metrics, fund managers like NTN can showcase the sustainable characteristics of their products, positioning themselves as industry leaders in responsible investing. While NTN is not obligated to comply with the SFDR disclosure requirements under the current regulation, reporting on these metrics now will prepare NTN and its portfolio companies for upcoming requirements - both regulatory and market-driven.
A recent report from Goldman Sachs notes that “SFDR continues to drive the transition towards ESG integration amongst the investment community in Europe and beyond, with ESG funds (Article 8 and 9) capturing growing share of fund flow. Equity Article 8 and 9 funds have received nearly 4x the cumulative inflows vs. non-ESG counterparts (Article 6) since 2019.” Disclosure compliance is a signal to stakeholders of a commitment to sustainability, a commitment to risk reduction, and a commitment to resilience.
Why SFDR?
1. Driving standardization in the market
SFDR sets a clear framework for ESG reporting across the EU financial sector. By providing a consistent set of reporting requirements, SFDR will drive standardization in the market and make it easier for investors to compare
and assess the sustainability performance of different financial products.
2. Preparing for future reporting requirements
SFDR represents a step towards more comprehensive ESG reporting requirements. By complying with SFDR, financial market participants will be better prepared for future reporting requirements that may emerge as global
financial markets seek to further integrate sustainability considerations into the financial system.
3. Avoid greenwashing claims
With increased interest in sustainable investing, there is also a risk of greenwashing – where companies make exaggerated or misleading claims about their sustainability performance. By complying with SFDR, financial market
participants can demonstrate that they are serious about sustainability and are taking concrete steps to integrate ESG factors into their investment decisions.
4. Laying a sustainable foundation
SFDR provides a framework for financial market participants to integrate sustainability considerations into their investment processes. By doing so, they can lay a foundation for long-term sustainable growth that takes into account environmental, social, and governance factors, which can help to mitigate risks and create opportunities that contribute to sustainable development.
5. Supporting portfolio companies to report on the most demanded metrics and laying the foundation to report on more challenging ones
By complying with SFDR, financial market participants can support their portfolio companies in reporting on ESG metrics that are in high demand from investors. Furthermore, by laying a foundation for more comprehensive ESG reporting, financial market participants can support their portfolio companies to report on more challenging metrics, such as greenhouse gas emissions.
What’s Next? Building from the Benchmark
Tracking these SFDR baseline metrics creates a recognized ESG foundation for NTN and its portfolio companies to build upon. This foundation sets up portfolio companies to further identify ESG and impact metrics that are specific to their industry and business, positioning them for long-term success with investors, customers, and employees.
ESG and impact measurement is also about continuous improvement. NTN plans to build from the benchmark in the following ways to differentiate themselves as a leader in the global ESG and impact investor community:
→ Comparing baseline performance at the company and portfolio level to sector-specific and geography-specific benchmarks
→ Setting targets for performance improvement
→ Supporting portfolio companies to identify the actions they can take to improve performance on each metric
→ Collaborating with co-investors to standardize company reporting requirements
→ Enabling companies to identify metrics that are specific to their industry and business
SFDR is just the beginning. By becoming an early adopter, NTN Holdings is staying ahead of the curve, future-proofing their fund from financial risk, and learning new ways to become more impactful for their shareholders and stakeholders alike.