Sustainability Analysis Tool for Natural Capital Evaluation

With the introduction of stringent environmental, social and governance (ESG) disclosure requirements such as the Corporate Sustainability Reporting Directive (CSRD) and the Task Force on Nature-related Financial Disclosures (TNFD), there is a heightened focus on transparency and accountability in environmental, social, and governance practices for corporates as well as small and medium-sized enterprises (SMEs). Consumers are also increasingly seeking products and services that align with ethical and sustainable principles.

Despite this growing demand, the market has lacked robust solutions for quantifying and certifying ESG impacts throughout the supply chain. The technology proposed herein addresses this gap by providing a comprehensive, quantifiable evaluation of natural capital and social impacts using the inclusive wealth index (a metric for measuring the total wealth of a country, including natural, human, social, and produced capital) and life cycle assessment (LCA) methodologies assigning quantitative values to natural resources, particularly in terms of their flows and stocks. This capability not only meets sustainability disclosure requirements but also supports companies in enhancing their ESG credentials.

The assessment framework is developed as an AI-powered software tool for the user to visualise a product’s supply chain map. It could trace back not only direct suppliers but also secondary, tertiary and upstream suppliers to identify hot spots or high-risk areas for ESG indicators, allowing the user to prioritise and plan for the remediation actions to restore natural capital, through a review of supply chains and input goods.

The startup team is seeking to partner SMEs that are part of large corporate supply chain, corporations or municipalities that requires comprehensive ESG assessment and natural capital evaluation in reducing supply chain risk for a broader range of ESG indicators beyond carbon emissions.

• The assessment framework that enables quantitative evaluation of the economic value of natural capital in terms of flows and stocks, with the cost structure data and quantity data as the input data complemented by industry averages using big data/AI.
• The quantitative values were obtained from in-house research and product/services cost component data gathered by the research and startup team, providing ESG assessment and scoring for close to 16,000 products and services based on about 3,290 ESG indicators ranging from human rights, wages, child labour, gender equality, greenhouse gas emissions to consumption of natural resources before the products are supplied in different geographies.

• Dashboard enables the users to benchmark their level of achievement in ESG impact relative to the industry average, identify their company's strengths and areas of improvements.

• Sustainability guidelines considered by the framework include TNFD, TCFD, CDP, GHG Protocol, ISSB, SASB Standards, etc.
• Validity and reliability of the ESG assessment is verified and certified by a third-party international academic organisation, i.e., The Organisation for Sustainametrics with reference to ISO 14020:2000, ISO 14001:2015, ISO 14075 and SA8000 standards.

The supply chain ESG analysis could be applied in various sectors that are becoming essential in major global markets. Quantitative evaluation of the economic value of natural capital in both flows and stocks could be applied in not just corporations and SMEs but for countries and municipalities. Applicable use cases include:

1. ESG management for long term company strategy planning, e.g., new product development.
2. Impact assessment, e.g., analysis prior to development of a new infrastructure project.
3. Investor-oriented integrated reporting vs. industry averages.
4. Supply chain risk assessment, e.g., financial risks attributable to sustainability in food industry.

Given the current regulatory landscape and consumer trends, the potential market size for the proposed technology is substantial. Companies across various sectors, including manufacturing, retail, and finance, can leverage on this solution to improve their ESG performance, gain competitive advantage, and meet the rising expectations of stakeholders.

The proposed technology offers a unique value proposition by enabling precise, data-driven ESG assessments, making it an attractive and essential tool in the journey towards sustainability.

• In addition to the Inclusive wealth index for national and local governments, Scope 3 and LCA have already become important among companies, and have been adopted by the TCFD as standard methods for evaluating natural capital. These analyses focus mainly on climate change and measure flows. However, the current situation where companies and national and local governments have different approaches to assessing natural capital not only makes it difficult to share information among stakeholders, but also hinders their participation and goal achievement.
• Therefore, the development team aims to provide an impact assessment method that covers the impacts of nature, people, and man-made resources by extending the scope of LCA assessment, extending the inclusive wealth index used by national and local governments to corporate organizations, and enabling a PDCA cycle based on cross-referencing.