Ep 8 - Lubomila Jordanova - Unifying the Understanding of ESG

Introduction: 

Hello, and welcome to ESG in VC, a podcast where I continue to interview top players in the ESG space and where we dive into ESG-related topics, exploring how investors, regulators, and founders try to build a more sustainable and inclusive society. I'm your host Oksana Stowe and today we will hear from Lubomila Jordanova.

Lubomila is a co-founder and CEO of Plan A, a Berlin-based company, developing an end-to-end platform that uses machine learning and science to enable businesses to manage and improve their carbon and ESG performance. She is also the co-founder of the Greentech Alliance, a community of over a thousand startups, which are connected to over 500 advisors. Prior to Plan A, she worked in investment banking, venture capital, and FinTech in Asia and Europe. It's really great to have her with us. 

Oksana: 

Hi, Lubomila. Really good to have you with us. I thought it would be great to compliment you on the fact that you have been a very vocal advocate for pushing change around climate action and to do it sooner than later. It would be great if you could give a very quick snapshot of how Plan A is trying to expedite this process.

Lubomila: 

Thank you so much for having me. I'm really happy to be here. I'm the CEO and co-founder of Plan A. What we do at Plan A is we've developed a solution for assessment and improvement of ESG for different sizes of businesses. What we enable businesses to do is first of all, to understand where they're standing in this whole process. What is the data telling us? How good are they performing on the environmental, social and governance side? And then essentially automatically get a prescription on how they can improve and finally, get the possibility to report on the different standards that obviously have been popping up across Europe, quite extensively.

With this platform, we enable businesses to really have a house of sustainability or house of ESG where all of their data is gathered. Not only from them, but also from their suppliers, from their investments and for them to really have a clear path to become a sustainability and ESG leader.  

Oksana: 

Great. And who are Plans A’s typical customers? Could you share a few success stories and how your solution has helped? As you say, you offer prescription in a way, what to do. It would be great to get a few success stories. 

Lubomila: 

Absolutely, yeah. Plan A has been working now with more than 800 businesses around the world. And it definitely has been focusing on Europe in particular, EU and the UK, because all the legislation and all the changes on the legislative level have been happening in these particular geographies.  

A few success stories, maybe from the VC scene as clients are Albion.  Albion is a VC with a hundred portfolio companies, and for them it has been really important to really be at the forefront of sustainability and ESG, where they not only assess their own data, but also support their portfolio on becoming better at sustainability. 

Other examples would be Apax, so private equity that is internationally renowned.

For both of these use cases, we've analysed not only their own data from their facility vehicles, but also we've given them the possibility to go through deeper level of assessment, which is related to their portfolio. And through this, be able to identify what kind of actions they would like to take first in order to support their decarbonization and ESG improvement journey.

Other than that, we work with hundreds of companies. I'll give a few examples from the startup scene. So, Grover, Urban Sports Club, and N26, FlixBus. And from the corporate sphere, BMW, the  European Commission. All of these companies are different, but what unites them is the ambition to become sustainable and to really be leaders in ESG, which doesn't mean only measuring your emissions in your ESG performance, but actually having a plan for what to do afterward. 

Oksana: 

And I assume a person you engage with on the client side, is the chief sustainability officer or maybe there is obviously a variety of titles. Please correct me if I'm wrong. What challenges do they face internally that they share with you?

Lubomila: 

Usually, the challenges that we see faced by whoever's responsible for sustainability, because the truth is, is that we definitely communicate to chief sustainability officers, but also we speak to heads of impact, heads of ESG, and sometimes there's also someone from marketing that is also responsible for the topic or CSR. There is still often quite a misalignment so that's why there are different stakeholders. 

Usually the challenge for them is an educational one. What they often see is a lot of different stakeholders that need to be aligned, a lot of different suppliers or investments that need to learn on why they need to spend time with ESG and with sustainability.

There's often also issues related to data collection. We cover quite in-depth, all the needed elements of the assessment of a company. This is the environmental, social, and governance ones. And all of those, if you really go in-depth, you have to go through sometimes hundreds, sometimes millions of data points, obviously not all of these immediately available or at least the organization knows where they are. That's something we support with. 

And finally, the bit which is most important when it comes to actually addressing climate change is the challenge of taking action. Many companies at this stage are at the point of assessing their performance, understanding how they can turn this into a communication strategy.

Our clients actually want to change. They want to really be able to speak with results. And getting the different stakeholders to collaborate on this always takes time. So that's definitely something that they also find challenging. So certainly engagement of different stakeholders, having this internal/external buy-in, data collection, and finally taking action that involves many different stakeholders.

Oksana: 

Great summary. It's been more and more funds, actually venture funds and the ones that are on the larger side, coming to realization that they need to hire a Chief Sustainability Officer. I assume from some of your clients that you have worked with, that they have a Chief Sustainability Officer or a similar title. Do you think that that is a step change for organizations to take ESG seriously? Or do you think it's still seen as a nice to have? 

Lubomila: 

I will certainly confirm that not only more investments have been going into the space, but also the awareness and the level of education has increased in the whole industry.

I think multiple factors have been influencing this. On one hand and probably most importantly, investment funds have started understanding the climate risk that is associated with their bottom line. Meaning how climate risk is financial risk. And if you don't understand, what is the impact of your investments, what is the impact of this Scope 3 Category 15, you're less likely to be better prepared for the future. 

And maybe for the VCs, this today might seem a bit outlandish because they're not working with a fund with investments that would be prone to unintended CapEx, but ultimately there are quite a lot of private equities, hedge funds, and also others that could potentially be LPs of the VCs that are asking these questions. So ultimately this drills down, back to the VC itself. 

On the other hand, there's also been a lot of demand from employees. VCs are definitely, as we are, in a talent war.  There is a lot of money in the market and there's also a lot of offers on the market. So ultimately the employees are the ones that are choosing who they end up working with. 

This is something that is absolutely great because it really puts high the standards of the employers, and it really ends up increasing the quality of the offerings that anyone is giving. But that means that also VCs need to adhere to different standards than simply offering a high salary.

They need to align to the values of these different employees or potential employees, and also offer them the confidence that the VC thinks about the future they're investing in, and that they think of it from a 360-degree perspective rather than simply from the financial return. 

And then the final bit is definitely the fact that VCs themselves have been historically doing a lot of work on trying to differentiate. There's been a lot of VCs that have been playing the content game. There's been other VCs that have been offering operational support for their portfolio. A third type have been spending a lot of effort into building networks and communities so that they can create the security for the next stage of funding that the portfolio company might have.

ESG is part of this book as well, where it acts as a differentiating point for the VC and they use it also as a selling value proposition for when they're standing in front of the startups. 

Oksana: 

Yeah, agreed yet the impact investing in the number of impact funds that have been raised, increased massively, but it's still behind many other industries. Quite heavily behind. What do you think of as the main reasons for not investing more in the impact space?

Lubomila: 

Honestly, I'm going to be dissatisfied because we're on the side of the story where we want all investments to be with an ESG angle, to be with an impact angle. The truth is, is that there has been a few hundred percent increase in the amount of money that has been going into the space so we should not undermine the progress that has been made. I want to give also kudos to all the VCs that, at least we have in our client portfolio, but also the VCs that we know well that have been spending time on developing a thesis.

I think this transformation that we're going through now, as much as it has been felt quite significantly over the last one year for the VCs, it is a transformation that has been going on for the economy for the last two or three years, but then for larger institutions, maybe for five or six. So we need to see also the patterns of change that are dependent on the different building blocks that are connected to one another and use this as a lever to also cherish the success that has been achieved.

I am confident that next year, a majority of the funds that we're going to see being raised or altogether funding rounds that are being announced are all going to have one way or another, an ESG angle. You can correct me on that. Check with me next year, and we can do another session to discuss the results of that.

But I honestly feel like, we are just in the beginning of this massive transformation for the whole industry and already the data shows that the speed with which this change is going to happen is incomprehensible in comparison to what we probably anticipated 24 months ago. 

Oksana: 

Yeah, I agree.  Yet sometimes I do feel that there is still a lot of stated intentions, but maybe not very quick actions, and obviously, change does take time. There are a number of funds that have been quite embracing and bold in their own way to tackle it openly and properly. But this was actually one of my next questions around the fact that, and you said it yourself in 2021 or last year, is that there is a lot of focus on disclosure, but maybe it's more of a laundry list and yes, we recognize that, but how can you push that change? That it's not just about stated intentions and disclosures, but about real action?

Lubomila: 

The main challenge that we have at the moment is the level of education that is the average of everyone at the moment. People still on one hand, perceive that doing offsetting is apparently climate action by itself. Whereas it isn't because the only climate action that has impact on climate change and can actively reduce emissions rather than simply neutralize them, compensate them, is actual reduction. 

On the other hand, we have people that think that developing a good marketing strategy, might be just the way into the topic. So engaging people into discussion kicks off the whole sustainability agenda. 

And the final one is of course, the case where businesses really take this as something that is potentially going to hinder their capacity for growth. And they embed this or take at least the initial steps to embed it into the operational level of managing the business. 

Until we don't equalize this level of understanding of what true climate action means, we're never going to be able to be at the speed of development of this industry that we want purely for the fact that we're going to be speaking in different languages. 

What we do as a company to push companies to do a lot more is first of all, confronting them to the data and preparing them for the future that they should anticipate with the fact that we have like scenario management on the platform. And there, you can see what are the anticipated costs related to carbon taxing, for example. What are the anticipated costs related to your inaction if you are not to respond to the needs of employees and customers and other stakeholders? Or what does it really mean for you to not have sustainable suppliers and how they can actually create this hidden climate risk and ESG risk that you might not account for at the moment towards your bottom line, but ultimately it is there. Again, I really want to say that I'm hopeful because after having worked with more than 800 companies, I know that there's market leadership that is at least pushing the agenda for many companies in Europe to think differently. That is not to say that we fixed the whole world. We know where emissions are being created. This is India, China, also in the U S where there's no clear legislative framework, except for the announcement that was made a few weeks ago by SEC. 

So we still have a long way to go, but the fact that at the moment in certain markets, you cannot skip, but talk about ESG and also if you're a certain type of company, you cannot actually be considered sustainable if you don't really speak about your Scope 3 and decarbonizing, that means we've made the initial steps into it.

Ultimately, where we need to get to is the point where we have a really clear pathway of aligning the language, as I mentioned in the beginning, and also making each other accountable for the de-carbonization efforts that we're all taking rather than simply for compensation or communication strategies that ultimately do not lead to the goal that can support the health of our planet improving.

Oksana: 

Yeah and do you think that regulation actually has a big role to play where certain disclosures will be mandatory and measurable? And are we far away from it, in your opinion?

Lubomila: 

I have a few issues related to legislation. First of all, is the amount of frameworks that kind of always the focus on decarbonization or ESG improvement within these frameworks. And the final one is related to the lack of education embedded in regulation. 

So if I go to the first one at the moment, we're looking into a lot of different international standards that keep on popping up, and ultimately any organization on this planet with a lot of credibility can come out with a press release and announce another reporting framework.

There have been some good, unified efforts like PCAF. Also, there's been some standards that have been picking up on a more kind of universal impact level, like B Corp that have been unifying the understanding of people. But the fact that we have a few hundred at the moment, it can demonstrate to you that we're definitely spending a lot of time on preparing reports in different formats, rather than on the action where it's needed.

The second bit related to the decarbonization focus is where legislation needs to support businesses on becoming better at ESG, becoming better at sustainability by asking them the questions on the change year on year, asking them the questions on how are they involving suppliers, how are they involving investments. 

And also what kind of tangible actions are they planning on taking on SBTI? The science-based target initiative is really great to the extent that it gives you a prediction of what is the likelihood of you achieving certain targets. But that doesn't necessarily give you the sense of urgency that needs to happen within that amount of time. So having more focus within these legislative systems on the actual decarbonization is where, and the actual ESG improvement, is where our success is hidden. 

And on the final point of the education, I would definitely share that we spend as a company quite a lot of time, on even during just sales calls, explaining some of the basic concepts related to sustainability or ESG. Scope, 1, 2, 3, science-based targets, decarbonisation, climate risk, climate bubble. And all of these things that we should ultimately get to learn at all levels. It's not a piece of knowledge that should be only within the board or within the sustainability team. Each one of us should know about this because this is our way of preparing ourselves for the future. If these regulatory frameworks also embed an educational bit, or at least a test on the knowledge of the stakeholder on how much they understand about sustainability about ESG. I think we stand a better chance of being more successful in this. 

So these are a few suggestions on how we can, I would say, improve our likelihood of being more sustainable as a society. 

Oksana: 

Yeah, I agree. It was quite eye-opening exercise for me when I started taking a deeper dive is a number of frameworks. I think even if you decide you want to do something, choosing the right framework, how you go about it, really becomes very, very confusing. So definitely agree on that. 

And one of the other questions I had, you partially answered it, but, on unintended consequences. There are always unintended consequences of certain solutions. And ESG in a way is a solution. Do you see any unintended consequences of ESG frameworks? It's really an open-ended question of what can go wrong. 

Lubomila: 

Probably first of all, it's important to clarify that we cannot speak in a unified manner about ESG framework, because ESG is a set of KPIs related to environmental, social, and governance, but under this umbrella, you have hundreds of different frameworks that are defined by different bodies and probably another thousand more coming from the private equities, from the VCs, from different financial institutions themselves, where they have defined their own KPIs. 

So until we don't unify this understanding the first unintended consequence is that we're speaking about different topics because environmental by itself is so overwhelmingly big. In some VCs we see as part of the existing ESG assessment, a question about, do you have an environmental policy in place? And in others it's a full-fledged scope, one, two and three assessment of a portfolio company. 

So there's a big discrepancy in the level of depth that we cover at the moment with the existing frameworks, which explains to you the first maybe unintended consequences of the whole framework.

The second important bit, maybe related to what we didn't anticipate will happen is that because of the fact that the legislative framework is not so exhaustively detailed, we can see the label ESG, but we don't know if there's true intent hidden behind it. There's funds that have less than 1% of their assets within the ESG covered type, and they still use this all over their communication, but because there's no one that can contest this, we don't have the possibility to be able to know this as consumers or as investors. 

I would say these two would definitely stand out as unintended consequences. I can probably continue going on for many more, but ultimately what we need to understand is this idea that until we don't speak the same language, we're never going to be able to achieve the outcome that we're all having in mind, which is getting our planet to decarbonize or our planet to be at a healthier level, our economy to decarbonize and our companies and all of our stakeholders to be more sustainable in the way they do anything related to social, governance and environment.

Oksana: 

I agree, I agree. This is a very, very good ending statement.

Thank you so much, Lubomila for joining us. Really good to have you and all the best. 

Lubomila: 

Thank you so much for having me. Really happy to be here. 

Oksana: 

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