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Shaping the future of social and environmental performance analysis

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Bianca Iulia Simion

· 5 min read
Shaping the future of social and environmental performance analysis
Hatim Baheranwala, CEO & Co-founder of Treety

Hatim Baheranwala, CEO and Co-founder of Treety is a seasoned entrepreneur with a passion for building companies with a purpose beyond just profit. With an entrepreneurial track record spanning more than 10 years, Hatim co-founded IDfy.com in 2011, leading the organization until 2013. Post-IDfy, he volunteered with social organizations and ran businesses around peer networking, recruitment, and media content sourcing.

At the helm of Treety, headquartered in Amsterdam, Hatim is focused on contributing to the sustainable transition – and specifically within that helping investors gauge the success of their investments in terms of their social and environmental impact, apart from just financial performance.

With this mission, Treety provides a software-based solution for investors and their portfolio companies, facilitating the measurement of social and environmental impact while ensuring compliance with regulations like SFDR. Treety's global team spans four continents, and its impact is evident in collaborations with entities such as Privium Fund Management, Agfunder, and Google.

  • What experiences led to founding Treety, and why do you believe it is essential to measure social and environmental impact?

Treety began during the Corona pandemic. Mike - my cofounder - and I witnessed firsthand how an ‘externality’ had the power of shutting down the world economy. Despite its severity, there was rarely any business on earth that was able to predict its occurrence or realistically model its impact on their own business.

We concluded then that most businesses and decision-makers around the world were similarly blindsided when it comes to other environmental or social risks – such as climate change, biodiversity loss, or growing social inequality. We formulated a thesis that the economic system is due for an upgrade; the increasing occurrence of black swan events (draughts in Germany, wildfires in California, floods in Pakistan) will force governments, society, as well as responsible investors to take action and force businesses everywhere to start factoring their social and environmental impact in decision making as much as they factor financial tradeoffs.

In doing so, we feel we will eventually reach an economic system where environmental & social impact is valued as much as financial performance – and facilitating the transition to this system is the mission of Treety.

  • How does Treety plan to support the growth of the practice of impact measurement, particularly in compliance with regulations like SFDR?

Through the deployment of our solution with financial asset managers over the last few years, we are convinced that most individuals in these organizations would like to see their investment policies take a responsible stance on Environmental, Social, and Governance factors. The barrier is, most often, a lack of understanding of what policies are ‘good enough’, how to go about implementing them in investment decision-making, how to engage with portfolio companies, and also, how to compare their performance against peers.

We, therefore took a call at an early stage, that as part of the solution we offer, besides the software platform, we would also include education for our clients on all topics that are relevant to setting up these processes – right from understanding frameworks such as SFDR / SDR, which are offered through dedicated academies, to sharing best case practices from across the market, which is showcased through our ‘community portal’.

We believe educating our clients and prospective clients in this way will not only help us push forward on our primary mission of driving toward a sustainable economy but also support our business growth by helping build engagement with the market and position us as a credible authority on the subject.

  • In impact investing, how does Treety guide the balance between environmental & social impact and financial success, and what metrics matter most?

We believe the first misapprehension we must fight is the idea that social & environmental impact is contrary to financial success. Of course, this can and does happen sometimes, but many businesses can drive financial growth thanks to having a positive impact – where besides being more resilient to environmental changes, the positive impact of a business helps it build stronger relationships with community stakeholders and a more respectable brand. The key is to define a business model that incorporates both positive impact and financial success by design, and having good systems to monitor this impact in practice, so that there can be course correction where needed.

Following from the above, the metrics that matter to each business (and investor) can and should be unique to that business’ impact focus. There is no secret formula, and in my view, there shouldn’t be one either. Every business must take the responsibility to define its material positive and negative impact areas – and this is also the route that regulations such as CSRD & IFRS are taking.

  • For potential investors, what exit scenarios does Treety offer, and how does the company ensure a positive return on investment?

We are an ambitious company, operating in a market that is seeing exponential growth, with the drivers of that growth being long-term structural changes that are likely to stay in focus for decades to come – as a simple example, climate change isn’t going to solve itself tomorrow, or the next year, or even in the next 5 years.

We feel we are already in a strong position to build a business that capitalizes on this trend, and the current demand for solutions from businesses that are already making this transition is going to be dwarfed by the demand we can expect in the future.

Keeping this in mind, we are very confident in the prospects of our business to deliver a positive return to all shareholders. Specifically on the topic of exits, we are committed to offering a path for investors to liquidate their stake within 5 years – either through a strategic sale to industry partners (e.g. consultancies/service providers to private financial markets/enterprise software companies), or a buyback through the company itself. A point to note here is that we are already seeing investment interest from strategic partners in the industry.

  • How is Treety different from ESG rating providers, and specifically how will you compete with the larger more established providers?

We believe that ESG ratings represent the 1st generation of solution providers in the larger transition to a sustainable economy. There are rightly many criticisms of these ratings providers, but at the same time, we have to keep in mind the context in which they first started – 10 years ago, most of the world was not ready for formal environmental or social impact reporting.

We feel that ESG rating providers will continue to service their niche – specifically listed companies and investors in public markets that want to screen them. However, for a majority of the world's businesses, which are held privately, ESG ratings hold little value since there is rarely much information available about them in the public domain. Here the challenge is for investors to make it simple for their underlying businesses to quantify & report their impact, and where the business is unable to do so, find credible estimates for these – and this is what Treety excels at. In summary, therefore, we operate in a different market compared to these providers.

  • Who are you working with at this point? Is there a collaboration in particular that makes you proud?

We are very proud of each of our client relationships – Google was our first customer and helped shape our thinking around the diversity of impact metrics and how each business would report unique metrics. Privium came a bit later, but is currently our largest client and a very important relationship for us – as our developmental partner, we have a very close collaboration with them and they actively support us in helping define our product roadmap. Besides them, we also have excellent working relationships with Agfunder, Fair Capital Partners, and Dhow Kimura.

Most recently, we have signed a strategic partnership with Ocorian, a leading service provider to alternative asset managers across the world, where we will be their exclusive partner to provide an Impact & ESG solution to their base of 500+ global clients. We are very excited about the growth this will bring.

  • Share a success story where Treety's solution played a crucial role in regulatory compliance.

The best example would be Privium – with a portfolio of 14+ funds impacted by the SFDR regulation, they spent months looking at solutions in the market that could help them stay on top of the compliance requirements (tracking & managing ESG risks, collecting positive impact metrics, PAI reporting) - but usually found that solutions could only solve one part of the problem, or for only type of asset, or in many cases had limits on which impact metrics could be reported.

Privium chose to work with us first and foremost because our solution was flexible out of the box and could provide coverage for their entire portfolio, across all asset classes and impact metrics. Besides this, Privium was also able to integrate Treety seamlessly into their internal workflow, and are now working with us to bring our solution to more parts of their organization. Finally, the area that we are now working on increasingly is going beyond ‘just’ compliance, and ensuring that the data on Treety is directly helping improve portfolio outcomes – i.e. reducing ESG risks, and maximizing positive impact.

  • What challenges do you see ahead for Treety?

Our biggest challenge comes from the fact that the market itself is moving very fast, and is in flux – impact reporting and the regulatory frameworks supporting them are still in their nascency and are therefore still going through iterative cycles of formalization. We must spend time staying in sync with these changes, and ensuring our system adapts to these as they come about.

That, however, also reinforces our USP – our flexibility to model various asset classes & impact metrics also allows us to stay adaptable to this changing market. And besides this, being in this ‘challenging’ environment allows us to develop our headstart and unique understanding of this space that any future entrant would find hard to replicate. So in summary, we would not have it any other way.

  • How do you keep your talent close? Do you have any employee stock options plan in place or mind?

The key ingredient that has brought us together, and keeps us together, is our common belief in our mission and the need for the world to see the change that we are working on. Having a team that truly cares for what we do, honestly, reduces the necessity for having to keep escalating salaries or other incentives.

We do have an Employee Stock Option plan, but our motivation is more than just providing a financial incentive. We think it is fair for everyone who is working hard at Treety to benefit from our growth – and in their way build ownership over the company.

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