In an increasingly competitive business environment that calls for responsible business practices, environmental, social, and governance (ESG) factors are taking on new levels of significance in the corporate landscape.
“Ten years ago, capital and financial markets were built on top of financial projections, not ESG or alternative indicators. Companies realize this lack of holistic assessment leaves a lot of room for investment risk,” said Jason Tu, CEO and co-founder of sustainability data provider MioTech.
Founded in 2016, MioTech—its name referring to “a million technologies”—uses artificial intelligence to help companies manage ESG reporting and track carbon emissions. The company is backed by GIC, J.P. Morgan, HSBC, and Moody’s. It collects ESG data from a myriad of sources to provide a complete picture of a company’s environmental and social performance. The firm is based in Hong Kong, and has corporate and financial institutional clients based all over the world.
KrASIA chatted with Tu to find out more about MioTech’s business operations, the challenges faced by the AI firm, and its future plans.
This interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): Tell us about your business operations as an ESG data provider.
Jason Tu (JT): We are a sustainability data and technology provider. We not only help financial institutions obtain better transparency for ESG performance, but we also help companies track their ESG performance and facilitate carbon emissions reduction, including carbon trading.
Think about sustainability data this way: it goes from upstream to downstream. We can start by considering operational processes such as manufacturing activities and their direct carbon emissions.
Moving downstream, there’s data management and analysis and understanding how to store, manage, and analyze data according to industry benchmarks. Further downstream, we help corporations organize their data better, presenting it in formats that can be read by exchanges, regulators, or even customers.
We see our business as a value chain of data; from the way products are manufactured to the way companies share that data with financial institutions.
Kr: Which are your major markets?
JT: In 2021, the majority of our business was in the Greater China region—mainland China, Hong Kong, and Taiwan.
But as of 1H 2022, China only represented 40% of our total revenue. We’re expanding aggressively globally. One of our cornerstone markets is Southeast Asia.
Kr: Why did you decide to set up an ESG data business?
JT: I must admit that I was not born a sustainability enthusiast. I’m still learning about it after so many years since founding MioTech. The fundamental belief I have is that there is a lack of transparency in the market. In particular, we wanted to work with data, especially alternative data.
Alternative data covers nonconventional financial indicators, and refers to data other than what is found in financial statements.
Alternative data could be a government penalty record, or even a piece of negative or positive news. Besides news, it could also be satellite imagery that proves a company is polluting or protecting the environment.
Kr: Financial institutions account for around 20% of MioTech’s clients in terms of numbers but generate 70% of your revenue. Do you think this is a risky revenue model?
JT: Financial institutions have always been a strategic sector for us, although over the past year, we’ve been witnessing strong sales on the corporate side.
This year, we foresee our revenue from the corporate segment exceeding our revenue from financial institutions. Having said that, financial institutions will remain our most strategic sector.
Financial institutions have a strong leverage on the “real economy,” or business enterprises. At the same time, we’re embracing businesses in the supply chain, whether in Greater China or Southeast Asia. These businesses are all trying to secure their position in a very insecure global environment. During this process, there’s a need for a great deal of sustainability data, especially for exporters. This is because Europe and North America are mandating that products and services be proven sustainable.
In all, the financial sector is very important to us but the corporate sector is a much larger investable market.
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Kr: A major frustration about investing in Chinese companies is insufficient or unreliable corporate information. In the China ESG data space, less than 25% of companies listed in mainland China published their corporate social responsibility (CSR) reports in 2020. How do you navigate this information gap?
JT: We just saw the 2021 numbers. This year, out of more than 4,700 companies listed with China A-shares, only 1,412 disclosed their CSR reports, so the situation has improved. Hong Kong and Singapore have higher ESG disclosure rates.
To put this issue in perspective, we need to look at how data is obtained. There are three types: publicly available data from websites or alternative data sources, such as government records, news, and social media; estimated data, which is approximated based on indicators or parameters; and data from direct engagement, where we ask the company for information.
We’re a full life cycle sustainability data technology provider. We not only get data from the public domain but also do estimates. At the same time, we directly engage corporations to help them manage their data better so that they can make disclosures.
Kr: Specifically, how do you tackle the challenge arising from companies that intentionally omit data?
JT: It is true that companies can control how much they disclose, and AI is not the holy grail.
There are two types of companies that do not make disclosures. The first are those that don’t want to disclose because they have bad records or poor performance. The second type are those that simply don’t know; they’ve never done such calculations before.
Our focus is to help companies collect, manage, and analyze their data so they can formulate a feasible plan to enhance their sustainability. To our knowledge, there are only a small number of companies whose numbers are not great and don’t want to show them.
To date, 95% of companies that we have worked with do not have a public record. This is because they simply don’t have the numbers. These companies have not gathered sustainability data, and they only know how to carry out traditional financial reporting in terms of revenue, cash flow, and costs. I’m mostly referring to companies in Asia, especially those in Southeast Asia.
For Chinese companies, there’s already a technical system in place but they haven’t pulled together the data. In Southeast Asia, we’ve discovered that some manufacturers in Thailand and Indonesia don’t even have digital records. On one hand, this presents more challenges to us but it also means more opportunities.
That’s why, more recently, we started implementing an engagement model; we ask companies to provide us with specific data points.
Kr: As a sustainability data provider, MioTech uses image recognition technology to identify and catalog data. How do you reconcile being in ESG while using image recognition tech?
JT: We use image recognition because we need to extract textual information from images. For example, there are lots of public records in PDF or JPG formats. These are scanned copies of documents, penalty records, and utility bills.
Another instance in which we use image recognition technology is satellite imagery. For example, based on satellite imagery, we can recognize nitrogen oxide emissions within a region, pixel by pixel. You only see shades of color but you need to count the pixels to see the areas that are affected.
Kr: Financial institutions are a growing target amid a global greenwashing crackdown. In view that you have a sizable clientele from the financial sector, how do you address the general concerns about greenwashing?
JT: Many financial institutions who have not purchased our services are now buying our data. This is because they can use our data as proof that they’ve at least done some work.
We’re helping the entire industry to identify greenwashing by providing them with accurate, verifiable, and auditable data.
We also ensure the integrity of the data. We focus on alternative data precisely because we don’t rely on what companies say or disclose.
However, among all the types of data, alternative data points are considered controversial. Companies can claim that they are spending millions of dollars on environmental protection. Meanwhile, we might have captured alternative data about how they have been penalized in multiple geographies around the world.
For example, let’s look at a mining company we’ve been working with. It invested a lot in community engagement and biodiversity programs, but its public records tell another story. The firm has been penalized by different jurisdictions around the world, which is something that it needs to improve and work on.
It is important to see that there are two different perspectives on this situation. One is that MioTech is trying to use technology to make data verifiable. Also, we’re providing multiple lenses so that investors and regulators who use our data can really take a hard look at the company from different angles, especially from the perspective of alternative data.
Kr: Given the complexities of sourcing and verifying data, do you have plans to refine your business model?
JT: In our business model, one concept is very important—the ecosystem. Sustainability is a fast-growing market. We need holistic encouragement throughout the ecosystem to get everyone to adopt sustainability.
In particular, there is one area of growth—cross-selling between financial institutions and corporations—where financial institutions are bringing business enterprises into the ecosystem.
We’re also working with professional organizations. In the sustainability field, apart from technology, there’s methodology, which begs a few questions: Who sets the standards? How do you calculate carbon emissions? How do you report them?
So we want to be an important ecosystem provider and participant in different geographies. This also means that we’re not just expanding globally, but also from financial institutions to corporations and professional organizations. At the same time, we’re collaborating with professional organizations to educate the market.
Kr: You’ve just opened an office in Singapore. How do you intend to drive your Southeast Asian expansion?
JT: We’re moving forward in two directions. First, I foresee that supply chains will be a very important part of Southeast Asia. We want to help suppliers prove that their products are green and calculate their carbon footprint. Subsequently, they can use these numbers for export filings.
The second direction is a focus on different geographies. Southeast Asia is a very big market but it is highly fragmented, with different jurisdictions. We intend to leverage Singapore as a central hub to expand to other regions. Our Singapore office is the most important as it will serve as our headquarters in Southeast Asia. Apart from the HQ, we’re also hiring local representatives in each ASEAN country.
Kr: Any plans for an IPO?
JT: To be precise, we are trying to become “IPO-ready.” But there are various factors that play into an IPO, such as market conditions. Frankly, I don’t think this year’s market condition is good.
We also want to meet some of our key milestones. Southeast Asia is where we want to see the right numbers. Once we hit these numbers, we’ll think about going public.