Innovation Insider with Tom Stoner, CEO of Entelligent & Lindsay Ryan, GMA's ESG Program Manager | A tool to reduce climate risk ??

Helping Societe Generale and its clients adapt to the challenges of climate change is a cornerstone to our digital transformation and innovation strategy. We’re convinced that financial services have a critical role to play in achieving the Paris Agreement goals of net zero carbon emissions by 2050, underscored by the bank’s commitments and in joining the net-zero banking alliance last year.??

In February Societe Generale co-led a Series A funding round by Entelligent, the U.S.-based company that has developed a data analytics platform with clear, tangible metrics to enable asset managers to better understand the impact of climate risk on shareholder returns.??

To learn more about how Entelligent is filling the gap in climate risk data and the development of our partnership, I caught up with its CEO, Tom Stoner, and Lindsay Ryan, Societe Generale’s ESG Program Manager, Global Markets Americas, who recently joined its board.?

Tom, tell us what you offer clients.??

We provide tools for clients to construct investment portfolios and financial products that are best suited to meet the challenges and opportunities associated with climate risk.?

Entelligent’s data platform combines climate science, machine learning and advanced system dynamics for evaluating and mitigating climate change risks. We compile a Smart Climate E-Score rating each company’s vulnerability to climate transition risk. Our data set covers 85% of the global investable equity universe and 92% of the total market capitalization of U.S.-listed stocks.??

We offer portfolio analytics tools as a subscription service, work with a half-dozen banks – including Societe Generale –?in building their own quantitative approaches to climate change risks, and we are working with an international data company to integrate our scoring system into its buy-side offering.???

How do clients benefit??

There is a body of research and data showing that companies that act sustainably tend to outperform peers that have not addressed climate risks.?

For most investors, physical risk – such as rising sea levels – is very long term and outside their time horizons. Transition risk, however, is very real for them right now. That has to do with energy and determining what might happen between 2022, 2030 or 2050 on a global basis as governments respond to the issue of climate change and how they might revise their policies. This has consequences for consumer behavior and investment in technology and innovation, in turn driving some of the fundamental cost structures around different energy sources. Those kinds of issues related to climate change risks are very, very important.??

Where did the idea for Entelligent come from??

It started over a lunch I had with Dr. David Schimel, who won the Nobel Peace Prize in 2007 as convening lead author of the Intergovernmental Panel on Climate Change (IPCC). We both attended the same college in New England and its alumni team introduced us, given our shared interest in climate change and since I’m an entrepreneur in the energy sector.?

We really bonded over the belief that, if capitalism has been part of the problem, then it also becomes part of the solution. There's no other way to address climate change than by engaging industry in new investment to create a more sustainable path. We agreed that the financial services industry was the sector that was going to have the biggest impact but didn’t have the information it needed. That led us to look at alternative data sets using climate change scenarios, the primary work of David.??

Ten years ago, the burgeoning field of “low-carbon investing” was focused mostly on calculating emissions data. What we felt was needed was a more aggressive approach in looking not only at emissions in the past, but how companies are aligned in the future. We thought this could be unique as a much more forward-looking approach for constructing an alternative dataset by using climate change scenarios.?

In 2011 we formed an advisory board of climate scientists and started building a financial calculator to simulate the profitability of global energy source investment, such as coal, gas, oil and renewables. The following year we created a control panel so the calculator could?interact with global integrated assessment models (IAMs). In 2016 we started creating our E-Scores and integrating them with our Smart Climate technology, beginning the first of our successful patent filings five years ago. Our first client was the United Nations Joint Staff Pension Fund.?

What do you do differently from other data providers???

We’ve become the equivalent of the processor driving sustainable portfolio construction, where you really are looking at climate transition and incorporating strategies to reduce the exposure of a given portfolio to that risk. We've been astonished at how powerful adjusting for climate change risk can be.?

Our secret sauce is to relate the different climate transition risk scenarios to each other, then the different scenarios to its components, the components to the performance of sectors, and then relating this to individual securities and how they would fit into a portfolio. We then have the ability to back test that information in terms of the reduction of emissions as well as the financial performance. It’s automated, rich in data and provides universal coverage.?

It's not just about mitigating risk but also identifying the opportunities when you're adjusting for risk. That's where an investor can be a little bit more aggressive in trying to pursue a sustainability strategy. That's really empowering for an impact investor.??

What’s exciting and powerful is that it changes the game. We’re giving investors a predictive tool for reducing climate change risk so they can take responsibility for their sustainability practices and policies.???

What is your relationship with Societe Generale? ?

Isabelle Millat, Head of Sustainable Investment Solutions in the Global Markets team, introduced us to the Quantitative Investment Solutions team and that led us to join the 2020 intake of the Global Markets Incubator program.??

We spent more than a year with the Societe Generale team testing and retesting the data. In April 2021, we jointly launched the very first climate adjusted investment indexes, designed to identify companies taking positive climate change action. These are now being integrated into insurance products, such as the fixed-index annuity launched by Investors Heritage Life Insurance.??

Societe Generale doesn't want control of the technology we have developed, it just wants to be a first mover in the area of sustainable investment solutions. What's really been key in our relationship is how they've helped us get started in building the technology and taking products to market. Another area has been their help in testing and retesting the data so it gets better and better. We’re delighted that the bank took the partnership to the next level as co-lead investor in our recent round of funding.??

What are your ambitions for Entelligent??

We want Entelligent and its services to enable financial markets to adjust for climate change risk. If investors are beginning to work to reduce their personal or their portfolio’s climate change risks, they’re actually making a reduction in climate risk for our planet as well. That's going to take maybe more than three to five years, but the sooner the better.?

Lindsay, how is the partnership with Entelligent allowing Societe Generale to help clients??

Climate change risk and Environmental, Social and Governance (ESG) factors are increasingly being integrated into decision-making across the financial services industry. Societe Generale’s clients were telling us consistently that what they lacked were tools to look ahead at how climate risk will affect their investments and products.??

Our partnership in the Global Markets Incubator demonstrated to us how Entelligent’s datasets are unique and how they have a wide application for banks, asset managers, insurers and investors. It’s the predictive feature of Entelligent’s data that is so compelling; the technology is built on climate science of the world’s leading experts, which is hard to replicate.?

Societe Generale’s investment in Entelligent was the logical next step as we continue to use E-Scoring and other datasets to develop more products and services so our customers are able to mitigate climate risk and seize the opportunities that presents.?