ESG and The Power Of Open-Source Intelligence (OSINT)

“We frequently seek opportunities to enhance ESG within our investment processes. We felt that OSINT-based analysis was the natural next step for our ESG programme.” – Coller Capital

Neotas Partners With Coller Capital

Neotas are delighted to be chosen service providers of Coller Capital, to provide enhanced ESG due diligence on their investments, integrating OSINT into their ESG risk management framework. 

In their latest ESG Report, Coller Capital highlighted the power of OSINT in providing valuable insight beyond what is typically self-reported. This is critical at the initial investment stage and ongoing monitoring of the portfolio, to identify any red flags which need to be addressed throughout the funds’ lifecycle.

“This data provides new and original insights into non-financial risks. The inclusion of non-financial risk analysis has enabled better decision-making.” – Coller Capital

Who Are Coller Capital?

Founded in 1990, Coller Capital is one of the world’s leading investors in the secondary market for private assets, whose individual investments can be up to $1 billion or more. In January 2021 the firm closed Coller International Partners VIII, with committed capital (including co-investment vehicles) of just over $9 billion and backing from over 200 of the world’s leading institutional investors. In February 2022 the firm closed Coller Credit Opportunities I, with committed capital (including co-investment vehicles) of $1.45 billion and backing from over 30 institutional investors.

Regarded as a market leader for responsible investment, Coller Capital formed its ESG Committee in 2011, joined the first cohort of the Carbon Disclosure Project (CDP) and became carbon neutral as a firm in 2019. They are a founding signatory of the Initiative Climat International as well as a founding signatory of ILPA’s Diversity in Action (DIA) initiative.

Coller Capital have also retained their A+ rating from the PRI across the board since 2018.

ESG Report 2021

Within their ESG Report 2021, Coller Capital highlights the important role held by the industry in engendering greater innovation and collaboration in ESG.

As a secondary private capital investor, Coller Capital is well positioned to influence  the General Partners (GPs) into whose funds they invest on ESG. 

For their latest ESG report, Coller Capital gathered responses from 95 GPs representing 525 private equity funds, on their ESG approach and adoption of ESG practices.

Findings showed 86% of GPs of respondents are initiating measures to improve ESG performance within their portfolio companies. The proportion of GPs planning to increase their emphasis on ESG during the holding period also continues to grow, with 88% of respondents looking to increase their focus on ESG throughout their operational management. 73% respondents will focus on ESG during due diligence and / or when preparing for exit.

“Neotas searches go deeper than traditional due diligence checks by ‘spidering out’ across the entire internet and their proprietary AI technology helps them analyse vast quantities of data at speed.” – Coller Capital

Value of Enhanced ESG Screening

Early screening remains the most frequent stage at which a GP declined an investment for ESG reasons. Almost half of respondents within Coller Capital’s ESG report were found to have declined an opportunity on ESG grounds at the initial stage of the investment process, rather than after due diligence or at the Investment Committee stage. 

This only serves to highlight the importance of engaging OSINT investigations as early as possible. 

Further, only 32% of GPs reported ESG-related adverse events at their portfolio companies in the last 12 months and after cases of litigation, adverse publicity and negative media were the most common events. 

Is there more to uncover, before it’s too late?

“In revisiting and refining our process over time we have enhanced our approach to ESG screening, and our analysis and outputs” – Coller Capital

OSINT for ESG Risk Analysis

Did you know that search engines only capture 4-6% of available data online? 

Applying the science of OSINT honed over multi-year R&D, Neotas’ AI-powered Platform can rapidly analyse all publicly available data online across the entire breadth of the internet.

OSINT techniques overcome many of the shortcomings of traditional ESG assessments, which rely on self-reporting and experiences a time lag, as well as only capturing data at a point in time. The Neotas Platform and ongoing monitoring tool delivers analysis on a more real-time basis, rapidly processing vast quantities of live data to deliver meaningful insights for more robust, holistic decision-making.

Deep-dive investigations can be applied to both individuals or organisations and are not limited by international jurisdictions. The Platform processes data in over 200 languages and pulls from the following sources:

Example red flags that would otherwise have gone undiscovered using traditional methods include:

• The illegal use of animals and animal parts (e.g. rare, and protected species)
• Deforestation (e.g. illegal logging or logging in sensitive areas)
• Financial crime (e.g. fraud, money laundering)
• Unethical or unsafe work practices (e.g. modern slavery and human trafficking or other human rights abuses)

View and download recent ESG Case Studies

Tackling ‘Greenwashing’

“The time when firms could get away with a veneer of ESG is over.” Adam Black, Head of ESG & Sustainability at Coller Capital

Increasingly, regulators are turning attention to the claims of private market participants around sustainable investing, with a higher degree of scrutiny and emphasis on evidence. 

Neotas OSINT investigations can tackle accusations of ‘greenwashing’ by delivering ESG risk signals and reporting that is 100% fully auditable, documented and recorded at every step of the way.

Through greater emphasis on non-financial risk data and the use of OSINT techniques, Neotas are pleased to be long-term partners with Coller Capital to support their pioneering commitment to ESG. 

Make sure you’re ahead of the curve – schedule a call with a member of our team to enhance your ESG risk management framework today.

Download the Neotas & Coller Capital OSINT-ESG Report

ESG and The Power Of Open-Source Intelligence (OSINT):

ESG (Environmental, Social, and Governance) considerations are increasingly crucial for businesses striving for sustainability and responsible practices. This article delves into the transformative power of Open-Source Intelligence (OSINT) in the realm of ESG. Discover how OSINT data sources enable organizations to gather real-time information on ESG-related factors, such as carbon emissions, social impact, and governance practices. By harnessing the wealth of publicly available data, companies can make informed ESG decisions, track progress, and communicate transparently with stakeholders. Explore the synergy between ESG and OSINT, paving the way for more sustainable and socially responsible business practices.

Enhance Your ESG Due Diligence for Resilient Growth

Investing in ESG isn’t just about compliance—it’s about driving long-term value, building resilience, and aligning with the future of responsible business. With Neotas’ ESG Due Diligence, you gain deeper insights, mitigate risks, and ensure your investments are aligned with sustainable growth.

Empower your decision-making process today and lead the way in shaping a more sustainable and responsible future.

Ready to transform your ESG strategy? Let’s start the journey together.

For more information on how Neotas can support your ESG strategy, visit www.neotas.com or contact us at info@neotas.com. Connect with us on LinkedIn to stay updated on the latest industry insights and updates.

Read More on ESG Due Diligence:

• ESG Due Diligence Checklist for M&A Transactions
• ESG Due Diligence Questionnaire for Private Equity Investors
• ESG And The Power Of Open-Source Intelligence (OSINT)
• ESG Risk Investigation uncovers supply chain risks
• ESG Risks Uncovered In Investigation For Global Private Equity Firm
• Managing ESG risk impacts financial crime compliance
• ESG Investing & Due Diligence – Q&A With Brendan Bradley
• OSINT for ESG Due Diligence Investing

Supply Chain Risk Management

Increased Risk

Change and uncertainty are breeding grounds for risk and the timing of Brexit alongside the global pandemic has seen the opportunity for risk to increase significantly.

The risk management lifecycle is familiar to many of us:

• Risk identification
• Risk assessment
• Risk mitigation

But what about when the risks, and the dangers and implications associated with them, evolve? What about when well established procedures and risk management protocols are turned on their head by unprecedented global events?

KPMG predicted a “tsunami of fraud” in 2021 as the financial world catches up with the implications of the coronavirus pandemic. Our reports have signalled an increase in fraudulent activity so far this year and it shows no signs of slowing down yet.

Locking down a globalised world has brought with it intense challenges for risk management. Global supply chains have come under immense pressure as they deal with changing localised restrictions, the societal impact of the health crisis and the need for many businesses to adapt to survive.

So how do we solve the problem of increased risk? With uncertainty looking here to stay, the solution may be to supplement your supply chain risk management practices with a more agile approach.

Why Have We Seen Supply Chain Risk Increase?

Through both the pandemic and the changing regulations of Brexit, businesses have been forced to adapt in almost every way. Supply chains have been rocked by unforeseen vulnerabilities, often left exposed by the new pressures we have found ourselves under.

The globalised nature of many multi-tier supply chains has seen these challenges exacerbated from the top down. A single product could now have hundreds or even thousands of suppliers contributing to its delivery, with risk increasing at every stage. 

Travel restrictions have contributed to increased risk. Supply chain risk management becomes an even more difficult task when face-to-face assessments are limited and we become reliant on remote reporting and approval systems.

The typical lag in reporting and the uncertainty of the past 18 months means that it can also be difficult to trust financial data on the surface. Without further inspection, how can you trust that a supplier’s most recent statements are sound, when the pre-pandemic period may no longer be applicable and the during-pandemic period was so unprecedented?

Lastly, social media also has a part to play in reputational risk. Managing reputational damage can play a significant role in the overall health of a business and while financial data can lag, social media’s impact can be swiftly felt and unforgiving. Reputations can be tarnished by association so while it may not be your fault directly – it can still be your problem.

“You can insure against the failure of a customer, but how would you deal with the failure of a key supplier?” – Deloitte

Supply Chain ESG Risk

With an increased focus on ESG, comes greater scrutiny for the supply chain. The general public has never been more interested in knowing where their products came from, who made them and what impact their production had on the environment. The wrong decision could be catastrophic for industry.

In a modern multi-tier supply chain, the firm at the top of the chain remains at least partly responsible for the sustainability and societal impact of the suppliers at the bottom – at least in the eyes of the public. The larger the chain, the more difficult it can become to identify risks – particularly when subcontractors are introduced and when the only method of reporting is remote self-reporting.

We recently discussed the increased risks that ESG-specific investing can face, including reputational issues and corporate greenwashing, with FinTech expert Brendan Bradley.

Restrictions Highlight Self-Reporting Shortcomings

The self-reporting model has always relied on honesty and integrity from companies but with increased pressure brought by the pandemic, businesses have been forced to adapt. Are firms likely to divulge information that could harm their reputations? Brendan Bradley thinks possibly not: 

“Are firms likely to divulge information that could harm their reputations? I think there’s a grey area there with respect to what they will report and how much that’s actually being fully audited. If these assessments are being reduced to box-ticking and that’s never audited, you’re reliant on complete honesty from organisations whose number one interest will always be self-preservation.”

While self-reporting models were previously audited and punctuated by announced and unannounced site visits, travel restrictions have rendered those a thing of the past. As such, an independent, data driven, flexible auditing solution is required to help lower risks.

An ideal reporting model would no longer rely on self-reporting alone to assess the risks and credibility of a supplier and would also report data closer to real-time. 

Time To Stay Compliant

The disruptions to supply chains have brought with them increased risk of non-compliance. The need to improvise and adapt brought by the pandemic has led to increased likelihood of non-compliance amongst suppliers, as chains came under pressure to continue operating under heavy restrictions.

Personnel Today recently reported on a huge surge in umbrella companies being used to abuse the UK tax system, with suppliers taking advantage of reduced taxation loopholes. The potential impact for associated companies includes regulatory action, as well as the reputational damage of non-compliance within your supply chain.

An independent audit of suppliers, building a clear risk profile using public data can help highlight any issues in transparency and ensure the chain remains compliant.

Identifying The Weak Link

“Your supply chain is only as strong as its weakest link” – Deloitte

While tried and trusted supply chain risk management procedures continue to be effective, now more than ever it’s crucial to be agile in our response to risk. It’s critical that businesses can establish a clear risk profile for each of their suppliers, highlighting vulnerabilities and assessing a wide range of financial and non-financial factors.

Are your supply chain screening procedures up to date? Are they robust enough to identify modern risks including cyber risk, risks associated with the pandemic or modern slavery?

Identify the risk factors most appropriate to your business. Design a risk model that will allow you to identify which suppliers are the most important and which are the most vulnerable. It’s about making sure you have the tools, expertise and techniques to gain a high level of understanding of your key suppliers.

Using Open Source Intelligence To Lower Supply Chain Risk

The role that open source intelligence (OSINT) can play in reducing supply chain risk is clear. Using OSINT we can monitor risks much closer to real-time, highlighting potentially damaging events or actions that occur outside of the regular reporting period. 

Through OSINT, we are able to map supplier networks and analyse non-financial risks including those linked to adverse media, customer feedback, ESG and more. Adopting an enhanced, AI-driven model to supplement existing checks allows for deeper insights to inform your supply chain risk management strategy. 

Technology like Neotas’ proprietary advanced machine learning technology is capable of processing vast quantities of relevant risk data, lowering the reliance on the self-reporting model. Our enhanced risk & compliance solutions aren’t limited by global jurisdictions and harness natural language processing to analyse data in over 200 languages.

The time to adapt traditional supply chain risk management practices is now. Using OSINT powered EDD, businesses can harness publicly available data to help lower supply risks. Get in touch with our team today to discuss your supply chain risk management practices and how we can lower your risks.

Download Our Recent Supply Chain Risk Management Case Study

ESG Investing & Due Diligence

The topic of ESG continues to gather momentum as one of the defining trends of this decade. But why has the term seen such a surge in interest and are current reporting systems robust enough to report on evolving ESG issues? How can enhanced due diligence be used to improve ESG reporting? We’ve caught up with FinTech expert and author Brendan Bradley, author of ESG Investing for Dummies, to discuss all that and more.

How would you define ESG?

ESG has generally become synonymous with socially responsible investment. However, ESG should be seen as more of a risk management framework for evaluating companies and not as a standalone investment strategy. ESG measures the sustainability and societal impact of an investment in a company. ESG fundamentals are part of an assessment process to apply non-financial factors to a manager’s analysis in identifying material risks and growth opportunities.

What made you want to write the book?

There is a lot of hype around ESG which invariably means that people start using acronyms and making statements off the back of the last thing that they have read. I was as guilty as anybody else. I had co-authored FinTech for Dummies to help bridge the gap in education and decided that I could do that for myself and then help others by writing ESG Investing for Dummies

Why do you think ESG as a topic has seen a huge surge in interest?

With growing action from governments, companies, and investors to consider environmental and societal impacts, it seems inevitable that ESG considerations will be included in all of our investment decisions at some point in the future. As the world is changing, there is a greater requirement to understand what risks or opportunities a company faces from ESG issues that may determine its long-term prospects. The COVID-19 pandemic has highlighted the need to consider these factors even further, hence the recent surge in investments in this space. Even within this century, the context in which businesses operate has changed radically.

What’s driving the increased interest in ESG investing  – social conscience or a fear of reputational damage?

Both! Some firms are genuinely trying to be better corporate citizens as in the long run it is good for their business as well as making them more sustainable but all companies are mindful of what the reputational damage does to their bottom line and share price so that will also be in the back of their minds.

How prevalent is corporate greenwashing? 

Today greenwashing appears to have become more prevalent, but it is difficult to prove given the lack of a common definition for what constitutes good corporate behaviour. One example of greenwashing could be companies claiming their products are from recycled materials or have energy-saving benefits, while the flip side is regulators calling out asset managers on their use of marketing that represents their products or activities as positively ‘green’ when they are not. Companies are responding but perhaps not always in a manner that is genuinely aligned with improved corporate performance on social or environmental issues.

The other aspect out there at the moment is “Corona-washing”, which is linked to activities following the pandemic. From a similar perspective, companies are claiming that they’re doing certain things to inflate their reputation when perhaps they’re stretching the truth a little.  

How important is it to develop an ESG policy?

The expectations of investors and other stakeholders regarding corporate conduct is changing and becoming more demanding. Deciding whether companies really ‘walk the walk’ entails in-depth knowledge of corporate culture, environmental impacts, labour relations, management quality, supply chain practices, and risk profile. Analysts are scrutinizing a company’s ESG claims in the same way they have traditionally viewed a company’s financial statement fundamentals. Companies and fund managers are aware of the premiums they can extract if their products or services are considered to be green or sustainable so having an ESG policy seems to be critical.

How does ESG create value for organisations?

Given that companies with high ESG ratings exhibit a lower cost of capital, less volatile earnings, and lower market risk than companies with low ESG ratings, sustainability should be our new standard for investing. For years analysts have considered good governance as a key trait for successful companies – manage your own house properly and there is more likelihood that you will do the right things as a company. Similarly, in more recent times, companies that have proactively reduced emissions and are environmentally aware are invariably incorporating the new trends of renewable energy or sustainable production and consumption, which today’s consumers are actively considering. And the pandemic has shown which companies are living up to their social responsibilities – whether that is with respect to their employees, customers, suppliers and community.

Is ESG investing currently in a bubble that’s likely to burst any time soon? 

The genie is out of the bottle – I think that ESG performance benefitted from the BigTech surge last year – many ESG indices have the FAANG stocks and Tesla in their components so if they experience a drop in share prices ESG performance will do likewise? But I don’t see the Assets under Management going anywhere other than North.

What’s the future for ESG investing?

Given that companies with high ESG ratings exhibit a lower cost of capital, less volatile earnings, and lower market risk than companies with low ESG ratings, sustainability could be the new standard for investing. To enable a further change in allocation and strategy, asset owners may still need greater confidence in investors’ ability to correctly price potential longer-term risks and opportunities. Market participants, as well as regulators and policy makers, are seeking common terminology and standards to be able to identify specific ESG factors.

Are there any dangers with becoming too focused on ESG?

In the same way that there is an ongoing discussion around the pendulum swinging from growth stocks to value stocks, you shouldn’t invest in a stock just because it fits into a given bucket. Similarly, there will be companies that have a high ESG rating for various reasons but that is just one element of the fundamentals of the company – don’t get blinded by the fact that it is a “good” company and ignore the traditional analysis, they may be greenwashing.

What are the increased risks that come with ESG investing?

In some cases there will be an over reliance on external ESG ratings for a company as part of the investment analysis when there are major differences in rating dependent on the provider’s methodology. While such differences exist they may be misleading. Some firms may have inflated values because they have received a given rating which may be unjustified (if this is disproven their share price may drop swiftly). In addition, the general wall of money behind ESG investing may lead to inflated valuations for given firms. 

Are the current ESG evaluation systems robust or clear enough to deliver what they promise? 

There does tend to be somewhat of a lagged effect to ESG reporting, so therefore you don’t really necessarily always have real time indicators. It can also be quite a scattered reporting system, with some elements delivered to places like the Global Reporting Initiative, others to different agencies and so on. 

The analysis itself can also be difficult to quantify. The environmental ratings have been out there a bit longer and have their own reporting requirements, so that is probably getting easier to understand. The governance side is something that everyone would have looked at anyway for a relatively long period of time, though governance analysis can also come down to a subjective opinion. I think the big piece with ESG at the moment is much more the Social factor and that becomes a lot more difficult to quantify or apply a rating. 

What kind of changes can you see happening to ESG assessment and regulation?

Potentially having a centralised system to order and standardise the approach where everybody agrees as to what should be reported, that could be a way forward. Though some things will remain difficult to assess using existing technology and will still suffer from the lagged effect without being monitored in real-time. 

There is definitely a case for more consistent evaluation in the future, in the form of real-time analysis or annual assessments. We could well see a move towards a more broad, consistent ESG reporting basis where companies, particularly supply chains for larger organisations or those in sensitive industries are monitored more closely with a kind of ongoing analysis. Annual or regular industry wide evaluations may also be commonplace in the future where firms are required to complete assessments. 

Can Open Source Intelligence help the ESG decision-making process? 

As ESG data is generally lagged, open source intelligence could definitely help if indicators can be compiled on a more real time basis, potentially using NLP services like Neotas. I’ve heard it said previously that there’s not sufficient data out there. I would actually argue sometimes there’s actually too much data that’s washing around, but how material is the data that’s being used and how often is it being reported?

Do you feel the issue could be with self-reporting? 

There are definite issues with self-reporting. Are firms likely to divulge information that could harm their reputations? I think there’s a grey area there with respect to what they will report and how much that’s actually being fully audited. If these assessments are being reduced to box-ticking and that’s never audited, you’re reliant on complete honesty from organisations whose number one interest will always be self-preservation.

Issues around ESG often aren’t black and white. Sometimes they’re more subjective. Is it harder to quantify the analysis because of that? 

It can be subjective and that makes it difficult to rate. It’s easy to suggest a system like credit ratings but with credit ratings we have a balance sheet, income and debt figures to compare it to. What we’re assessing with ESG has previously been more difficult to quantify and that’s where technology can help. Using tools like open source intelligence, identifying clear risk indicators and monitoring consistently to highlight any issues can help solve this issue. 

How would you describe best practice for ESG when it comes to due diligence? 

Driving further standardisation around the process and ensuring that companies are reporting material information rather than reporting a lot of irrelevant information to many different providers is key. Best practice should probably include:

• Evaluation of a business’s material ESG risks, liabilities and opportunities
• Benchmark ESG policies, practices and performance against industry peers and sector best practice
• Consideration of compliance with local regulations and international treaties
• Understanding of the elements driving a company’s ESG performance and how they could affect its brand value, relationships, reputation, and trust.
• Evaluate potential liabilities to determine effect on costs and cash flow

If you would like to discuss ESG, corporate governance or any sustainability checks with our team, please schedule a call here. Find out more about lowering your investment risks using open source intelligence here.

Brendan’s new book ESG Investing for Dummies is available to order digitally or in paperback now.

Download our recent ESG due diligence case study here: