One asset management firm implemented a new framework for ESG, resulting in a 'digital handshake' for the planet.

The lack of transparency and differing metrics in ESG investing makes it challenging for investors to measure the impact of their investments.

San Francisco-based asset manager Newday Impact Investing suggests that an Ecological Benefits Framework (EBF) could provide a new approach to social investing. Newday, which specializes in environmentally- and socially-responsible portfolios, contends that EBF offers a more comprehensive view of a business's true impact than traditional ESG investing.

The Lexicon, a non-governmental organization founded by Douglas Gayeton, created EBF, a holistic model that considers six elements - air, water, biodiversity, healthy soils, equity, and carbon - to evaluate the social impact of investments in the agrifood industry.

In October, Newday Impact became the first institution to incorporate EBF into its investment process, utilizing the "shared market architecture" framework across portfolios focused on the oceans and blue carbon.

One challenge has been the variety of complex ESG frameworks, with different interpretations of impact among organizations, as stated by Doug Heske, CEO of Newday Impact. Meanwhile, EBF aims to offer an integrated ecological standard framework.

Applying the framework

Heske states that the EBF framework does not generate a cumulative "score."

Heske stated that in the current ESG environment, providing an alpha or alpha-numeric score has been hindered because people make assumptions about the score. The issue is that a comprehensive score does not account for the unique impacts of a project in different geographies, according to Heske.

After applying EBF metrics, Healthcare company was deemed a suitable addition to Newday's portfolio holdings.

• McKesson has set several science-based targets (SBTi), including reducing Scope 1 and 2 greenhouse gas (GHG) emissions by 50% by 2032 from a 2020 base year. Additionally, by 2027, the company aims to have 70% of its suppliers have their own SBTi-approved GHG emissions reduction targets.
• The McKesson Foundation awarded a $500k grant to Parkland Health in 2022 to support the new RedBird Health Center, which serves a high number of patients from underserved communities.
• In 2023, the reduction of invoices for over 13,500 customer accounts resulted in an annual savings of $20.5 million, which also led to the elimination of 116 tons of paper and 112 tons of CO2 emissions, and the preservation of 2,784 trees.
• The paperless invoicing pilot project of the pharmaceutical division reduced paper usage by 51,000 sheets per day and decreased yearly CO2 emissions by 64.7 tons.
• McKesson offices and distribution centers consider Water as a Leadership in Energy and Environmental Design (LEED) and WELL Building Standards Area.
• The company is concentrating on eco-friendly packaging and waste reduction across all locations, including offices, warehouses, and distribution centers. This initiative is expected to reduce the use of approximately 59.6 million cardboard boxes annually, which is equivalent to 400,000 trees. In 2021, the company diverted 79% of its total waste, and 49% or 131,400 tons of retail food waste from landfills, preventing an estimated 825,427 metric tons of CO2e emissions from entering the atmosphere.

Through the EBF lens, examining investments expands carbon markets by providing a more comprehensive perspective on the impact of projects. Carbon markets enable companies to trade carbon credits to offset their greenhouse gas emissions, with counterparties from other companies that are reducing emissions. However, carbon offset markets have faced criticism for over-crediting projects and inadequate offset schemes.

A common ‘library’

The EBF aims to create a measurement, reporting, and verification (MRV) library that investors can utilize in their environmental decision-making process.

In the future, someone can locate the specific component related to their work and find an example of it, according to Heske.

According to Newsday's Heske, the EBF expands upon the existing multi-step MRV process for measuring greenhouse gas emissions and offers a more holistic approach by considering factors beyond carbon when issuing carbon credits.

Lexicon plans to introduce an "EBF Commons" in 2024, which it describes as a "digital handshake for the planet" that unites carbon markets, corporate social responsibility, and ESG reporting. The firms within the commons will collaborate as a collective decision-making body to navigate regulations and enhance interoperability across carbon marketplaces.

Newday plans to apply the EBF to its private equity projects in the future. Heske and Gayeton are exploring the use of blockchain and machine learning in the EBF investment construction process to improve data analysis. Heske is also considering collecting client behavior data to create a "values alignment profile" through broader demographic categories.

EBF could pave the way for markets-based solutions, according to Heske, and effectively communicate the impact to clients in a way that is engaging and easy to understand.

Heske stated that the tool is already extremely effective in increasing people's engagement in comprehending the influence of their capital within businesses, projects, private companies, and even charitable donations to nonprofit organizations.