Beyond rent seeking

OxEO is raising its first external investment round. This is the fourth in a series of five short posts written to support that effort. If you are a qualified investor and would like to see our deck, please get in touch.

Asset-level information is the big new thing in ESG data analytics. Actually, it’s not that new. My co-founder was writing about this as an Oxford researcher more than three years ago, and it has long been associated with the concept of ‘spatial finance’ — a topic that everyone from academia to zoology has opined on. The value of asset level data is that it offers a particular insight into corporate sustainability. It is of course possible to evaluate a company without this information: analysts have relied on financial results and press releases for decades. But as the value of companies increasingly become associated with environmental, societal and governance (ESG) factors, then questions of where and how they operate become more salient. Asset-level data are a key link to a company’s operational, financial and sustainability performance, particularly in asset-heavy sectors such as mining, industrials and utilities.

However, asset level information is not part of mandatory disclosure today. Companies are not required by regulators to make public filings regarding the locations where they operate the factories, farms, mines and warehouses that make up their businesses. Some companies volunteer this information, but unlike financial statements, it is not possible for the public to access this data consistently across a sector or market.

It is no surprise therefore that several enterprising ESG data providers have set about building asset-level data catalogues of their own. Using a range of methods from web scraping to geospatial analysis, providers are creating proprietary asset lists, which they make available to paying clients. It can be a lucrative endeavour. A pre-revenue company of my acquaintance recently raised a series A round in the low tens of millions, on the strength of their asset level data. Not that I’m remotely jealous.

We are, however, sceptical about this model. Certainly at OxEO we need to know what a company’s assets are, and where they are, to do the work that we do. And so we’ve developed our own approaches to source this data. But if the information was available to everybody for free, direct from the companies, that would enhance, not detract from, our value proposition. We produce insights from location-specific information, rather than attempt to profit from information asymmetries. We believe that proprietary asset-level data — while valuable to users — is ultimately just a form of rent-seeking.

But we do not think that the status quo will persevere in the medium term. Consider the prospect of asset-level reporting by companies being made compulsory. Who would be against it? Would companies claim that the information is competitively sensitive? It seems likely that competitors would anyway have this information if they wanted it — given that it’s available for purchase. The only constituency that would legitimately not wish to see this information in the public domain are the service providers who currently charge their clients for it.

In contrast, who would be in favour of company-disclosed asset level data being in the public domain? Pretty much everyone else, including investors, regulators, NGOs and civic society. We therefore think it is only a matter of time before location and ownership data of real assets becomes a public good. Momentum is coming from initiatives such as TCFD, via regulations such as SFDR, and through convening events such as COP 26. Some free-to-use datasets are also entering the public domain.

For our part, we will actively promote open-source access, and contribute wherever we can to building a global commons. We think this is the most effective way to support good science and accelerate the transition to a more sustainable allocation of capital across real assets.