Born out of corporate governance ideals, fintech Label-R is reviewing its target audiences and business model to raise awareness around ethical fund products and management processes in private equity.
For Oriane Schoonbroodt, everything started by observing the practices and governance of international companies. Based in New York and Geneva at the UN, then at the European Parliament in Brussels, she realised that major groups certainly subscribe loud and clear to the sustainable development initiatives of the United Nations, such as the UN Global Compact.
But the reality is quite different when it comes to applying these principles on the ground. “I was always a bit frustrated to see companies aligning themselves on paper with sustainable governance initiatives, without ever having to prove that they actually follow them,” the former diplomat regrets. “We have had big companies with big scandals, who, in order to whitewash themselves, signed up to the principles of the UN Global Compact.
She then decided to develop a certification system that would force them to respect their commitments in terms of ethics and good governance. She moved to Luxembourg in 2017 and launched her Label-R startup. With the aim of developing methodologies, which are in line with the principles in force on the subject.
“We have known big groups with big scandals, which to whitewash themselves signed the principles of the UN Global Compact.”
To this end, she is implementing methodologies integrated into an online platform with automated due diligence, risk scoring and reporting functionalities.
Change of target
The application helps clients build a comprehensive ESG overview of all their practices, product chains and activities. This is done through a series of questionnaires.
“We didn’t invent anything; we simply took everything that existed in the field and turned it into due diligence methodologies,” she explains.
To check that all the questions were auditable, i.e. designed in such a way that the audited companies could provide proof of the answer, she turned to SGS, a Geneva-based non-financial auditing multinational.
However, she is revising its original target and adapting the model to the financial sector, and more specifically to private equity businesses and products.
“While there are ratings for public funds, there are no ratings or best practice companies forcing asset managers and private funds to adopt the principles of good ethical governance,” explains Oriane Schoonbroodt.
For Schoonbroodt, private equity remains a promising sector: “It is a market that should reach 4.9 trillion dollars by 2023. It is also expected that around 41% of funds will have ESG strategies in the next two years,” she says.
In concrete terms, the platform will help managers to verify and validate all management processes of their funds, their underlying companies and their supply chain.
The startup is then testing the product and the platform with investment funds operating in emerging markets, and more specifically with institutions specialising in development finance.
These investors already have good governance processes in place, with some of the most stringent requirements in the financial industry and highly developed due diligence.
“When we launch a project, we often have a rather ideological approach to a market.”
“As these practices are being adopted by more and more fund managers, there is still a strong demand from all types of private equity funds,” she adds.
Via an annual license, managers access the questionnaires, which they then send to all their funds and underlying companies for completion, in order to have an overview of the entire portfolio.
Subscriptions also include, at the client’s request, a Label-R verification service of the processes and policies in place, as well as a reporting service. The solution also generates a gap analysis report between what they have and what they should have, along with a risk analysis.
ESG to better manage Covid
“We are not a regulator. It is above all a question of helping these managers to set up and apply good practices,” says Oriane.
However, she points out that the Covid-19 crisis and containment have brought to light social, health and safety risks that have been somewhat neglected by companies.
“These risks, which were latent, experienced a strong upsurge during this period,” notes the founder.
And those that had good processes, good supply chains, good systems and good governance fared much better than others. This reminds us that ESG is not just about environmental risks.
Four years into the project, does she not regret her original entrepreneurial ideal? “When you launch a project, you often have a rather ideological approach to a market. And as it evolves, you realise that the reality is quite different. We’d like to turn it from black to white, and we’re against the idea that this isn’t always possible,” she says.
“So I had to slightly lower the project’s standards and the rigidity of the business model to adapt them to the industry. But we were able to maintain a rigorous approach. However, you must never lose sight of your ideals and lead the world in that direction.
Photo: Oriane Schoonbroodt, Co-founder & CEO of Label-R © Label-R