Discussions about the business world’s environmental impact usually focus on large corporations – and with good reason. Roughly one-third of all greenhouse gas emissions (GHG) in modern times are directly linked to 20 major fossil fuel companies, according to a 2019 analysis by the Guardian, while a separate report found that 100 companies were the source of 70% of the world’s GHG during a 30-year period ending in 2017.

Given these stats, it’s understandable that small and mid-sized businesses (SMEs) are often left out of conversations about Environmental, Social, and Governance (ESG) issues. But that’s a mistake.

There are roughly 213 million small and mid-sized businesses globally, and they employ the vast majority of the working population.

A new company that aims to address this market is Novata, whose mission is to help privately held companies and private equity firms measure and benchmark ESG data. Novata launched as a public benefit corporation and technology platform in October. It bills itself as a “secure repository” for private company data that is both standardized and comparable, and offers solutions designed to address the unique demands of private markets.

“The majority of the world’s economic activity is driven by private companies – it is their approach to environmental and social impact which will ultimately accelerate the ideals of inclusive capitalism,” Novata CEO Alex Friedman said in a press release.

“Our solution is unprecedented because it marks the first time that a group of nonprofit and for-profit leaders in social justice, financial data, and the private markets have joined forces to solve for the ESG fragmentation that has plagued the public markets.” 

Novata was formed in partnership with the Ford Foundation, S&P Global, Hamilton Lane, and Omidyar Network, who banded together to provide initial investments of $21 million. That ranked among the biggest-ever initial fundraising rounds for a public-benefit corporation, Bloomberg reported. Additional funding was provided by Novata’s co-founders and its independent chair.

Several private equity firms serve as advisors, including Bridgepoint, Clearlake Capital Group, Kohlberg & Co., KPS Capital Partners, Lindsay Goldberg, Vistria Group, Summa Equity, and Thomas H. Lee Partners. Novata is majority-controlled by mission-driven organizations and its employees. Its solution features these three core elements: 

• A streamlined ESG reporting framework that consolidates common metrics that can be immediately leveraged by private companies. 
• A secure database that lets private companies report against Novata’s framework and other methodologies and also lets owners and general partners control access to company data. 
• Objective, data-driven benchmarking against both privately held and publicly traded company peers, as well as reporting tools designed to help private businesses gather vital insights from their data and easily report to investors, regulators, and other stakeholders. 

Novata was formed during a key period in the development of ESG data.

Just about all publicly traded companies have either adopted or are in the process of adopting formal standards built around sustainability, carbon emissions, and social justice. But that’s not the case with many private companies.

The reason mainly has to do with transparency. Unlike publicly traded companies, privately held firms don’t have to publicly disclose their ESG practices through regulatory filings. This means there’s less pressure on owners to be transparent about their practices, as Barron’s recently pointed out. There is also less clarity about which ESG metrics private companies should focus on and not much data to compare performances with peers.

Novata looks to close that gap.

“Many companies, both private and public, are feeling enormous pressure to showcase the impact of their corporate ESG efforts to their investors, employees, local communities, and more,” said Lorraine Spradley Wilson, Novata’s Chief Impact Officer and Head of ESG Methodology. “That’s where we come in. Novata is helping to illuminate the bigger ESG picture with tools that are practical for all private market participants, regardless of where they are on their individual journeys.”