Investors are increasingly looking at more than a company’s finances when deciding where to put their money.
In 2020 alone, environmental, social and governance (ESG) investments grew to $35 trillion, up from $30 trillion in 2018, according to Bloomberg.
A Twin Cities entrepreneur is seeking to capitalize on this movement with a new fintech platform he says brings value-focused ESG data sets to the market.
In 2019, Luke Wilcox, a data consultant, started Ethos, a Minneapolis tech company through which he would build a data system that provides investors with information to help gauge how well their portfolio impacts social issues that matter to them.
Wilcox’s assumption was investors, like him, want to know if their money is helping companies that care about saving the environment, closing gender pay gaps or making the labor force more diverse.
If investors are solely focused on the bottom line, Wilcox also assumed they would want to know if a controversial event increased any financial risk.
His assumptions were correct.
Since launching the company, 75 financial services and wealth management firms across the U.S. and Australia have subscribed to the Ethos platform for their clients, Wilcox said. In December, Ethos closed on $550,000 in a seed round from private investors to grow the business, and he plans to raise more capital from investors this year.
This year, Wilcox is anticipating $300,000 in annual recurring revenue.
In the Ethos platform, firms upload information about which social issues matter most to a specific client. The information helps financial advisers design a portfolio aligned with a client’s causes, or it can show how well aligned a client’s investments already are with those values or causes.
Through the platform, advisers can also search for information on specific companies. Ethos’ database consists of data on more than 7,000 publicly traded companies and 600 investment funds. His company’s software searches the web for public reports and company disclosures that contain information about the diversity of a company’s board of directors, its carbon emission footprint, or how workers are treated.
For small and private companies, which don’t disclose these financial items, Ethos measures the closest set of peers to that company and then models or assesses metrics, like carbon emissions, for that company.
Later this year, Ethos will add asset management components that will give users the ability to invest into environment, social and corporate governance, or ESG, causes through the platform.
Derek Rucker, a Twin Cities entrepreneur and investor who is backing Ethos, said Wilcox has found a niche in the ESG movement.
Rucker, an investor over the past 15 years who recently sold his own tech company, Carrot Health, said Ethos is a platform “not being offered anywhere else.”
“There are ratings out there for environmental, social and governance, but … there’s a lot of conflict of interest between these ratings providers and the companies they rate,” Rucker said. “When the company providing the rating is actually making the market, it’s kind of difficult to trust the rating.”
Wilcox previously worked in the nonprofit realm, where he wrote grant proposals and measured the impact of the organization’s social programs. He then earned his MBA at the University of Minnesota, leading to a career as a data consultant with large financial services and health services corporations.
The idea for Ethos started with Wilcox trying to understand the social impact of his own investment portfolio, but found no such platform on the market.
While impact investing is a relatively new space, it’s growing, Wilcox said, especially among younger investors who have an interest in social justice and want to be more active with their investment.
“We see the effects of climate change, with hurricanes and fires,” Wilcox said. “People see the urgency. The social justice movement over last couple of years has spurred people to look for other ways to have an impact on social issues they care about, and there’s been more awareness that money is one way to do that.”