Madrid-based Clarity AI, one of the first to use machine learning and data analytics to create environmental, social and governance (ESG) benchmarks for tracking and assessment of investment portfolios and companies, recently won minority investment from BlackRock. The world’s largest asset manager will also integrate Clarity’s capabilities in Aladdin, its risk management and operations platform for asset managers.
The January announcement from BlackRock, which controls more than $7.4tn worth of assets, followed Clarity’s $15m funding in October 2020. That round was led by German stock exchange operator Deutsche Börse, with participation from Spanish VC Alma Mundi Ventures. Clarity has raised total investment of almost $30m since its founding in 2017. To date, Clarity’s client network – which includes the World Bank, Google, NASA, McKinsey, Morgan Stanley, and JP Morgan – has over $10tn in assets under management.
Clarity targets assessing companies not only for their corporate behavior, but also takes in account the impact of their products and services on society. All these go into backing the reliable, quantifiable standards that investors need to be confident about investing in socially and environmentally conscious businesses. Indeed CEO Rebeca Minguela founded Clarity to address the twin problems facing the fast-growing ESG investment sector: fragmented and unreliable data, and the subjective and inconsistent criteria behind ESG assessment tools and insights.
“Impact is something that goes way beyond traditional ESG benchmarks to provide investors with a much more comprehensive and sophisticated analysis,” she said.
With no universally agreed definition of what counts as ESG positive or negative, an investment classified as ethically sound using one company's ESG criteria could be different from another company's sustainability policies. Other major issues are differing data sets and definitions used, the near-infinite factors making up ESG, companies’ differing priorities under the ESG umbrella, and the issue that many factors depend on voluntary disclosure by companies.
Less than two years after commercialization, Clarity AI currently analyzes more than 30,000 companies, over 200,000 investment funds and 400 countries and local governments. The startup’s latest investments will allow it to continue to drive integration with the world’s largest financial services platforms and to further grow its market. Its API is already in the process of being integrated with several financial entities' existing sustainability investment platforms, including most recently those of BlackRock, Deutsche Börse and AllFunds.
ESG investment booms
Despite its lack of agreed benchmarks, the sustainable investment market grew by over one-third to reach a third of total global assets under management between 2018 and 2020. Global investors expect their contributions to ESG portfolios to double by 2025, but more than half of investors surveyed in BlackRock's 2020 Global Sustainable Investing Survey named “poor quality or poor availability of ESG data and analytics” as their main objection to this kind of investment.
Clarity experienced a significant jump in demand through 2020, with investors pouring more of their money into ESG-related assets – a trend accelerated by the Covid-19 pandemic. These investors wanted less volatility and ever more transparency concerning the impact of their investments – precisely Clarity's pitch. "We have seen an increase in demand of more than three times than we had pre-Covid,” Minguela told media.
Clarity's proprietary software allows investors to build their own ESG methodology and to customize securities' impact scores based on their own investment criteria, for example by placing carbon replacement as a key requirement above all others. They can also rebalance their portfolio to readdress social and environmental impact while still priming financial performance.
Alternatively, investors may also opt for Clarity's global standard, which optimizes all inputs constituting social and environmental impact and stock market performance.
For each scenario, users of Clarity's SaaS can visualize their potential portfolios by both financial performance and by social and environmental impact – the tech's key differentiator. This element takes into account ESG performance but also incorporates data on how companies behave and the impact of their products and services on society, including factors such as carbon footprint and progress in the UN's Sustainable Development Goals. Clarity's dashboard also provides users with recommendations on how to rebalance their existing portfolio to readdress both social and environmental impact and financial performance.
Clarity draws on more than 65 data sources and provides over 1,000 indicators for each fund, including C02 emissions and waste management, the number of contracted workers, or any conflicts of interest or lawsuits brought against an entity. The user's cloud-based reporting tool generates reports in only three clicks following portfolio creation.
A scientific paper on the robustness of some of the startup's big-data tech published in 2018 by the IEEE and later mentioned in a World Economic Forum (WEF) study on AI said: “Clarity AI quantitatively tracks the social responsibility of firms, which can be used by fund managers to optimize socially responsible portfolios." Last year, Clarity was named one of WEF’s 100 Technology Pioneers.
Multi-talented founder
Clarity has over 100 staff spanning its headquarters in New York, its operations center in Madrid and a field office in London. Other VCs backing the startup include Kibo Ventures, Seaya Ventures and Founders Fund.
At aged 40, Minguela has consistently been an overachiever and a promotor of women in tech. She was shortlisted to the WEFs annual cohort of the Forum of Young Global Leaders and won the Women in Fintech prize of Spain's BBVA Open Talent for the best fintech led by a woman in 2017. She holds an MBA from Harvard Business School and previously headed the Global Digital Transformation Program at global giant Santander Bank, another of Clarity's customers.
Minguela first came to prominence as founder and CEO of Blink Booking, formerly a leading hotel booking app that was acquired by Groupon a mere 18 months following launch, where she then held a senior management role. She also worked as a consultant at Bain Capital Private Equity and Boston Consulting Group and was an engineer at the German Aerospace Agency, Siemens and IBM.
“Historically, investors seeking to evaluate a company’s societal impact were faced with fragmented and unreliable data, inconsistent and subjective definitions and ratings, and a lack of standards and tools,” Minguela said. “It was too hard and resource-intensive to get accurate and transparent insights, so many simply gave up or settled for less.
“That’s what Clarity AI was built to change. We use the power of technology and AI to create the world’s most reliable technology platform on social and environmental impact.”
