Episode 8, Game Changers and Transition Makers: Utopian thinking for sustainable development

Elena Lambros:

Hello and welcome to ESG Matters at Ashurst. I'm Elena Lambros, the Ashurst risk advisory climate change and sustainability partner. Welcome to the latest episode of Game Changers and Transition Makers. In this series, I'll be speaking to entrepreneurs around the globe who are at the forefront of driving the sustainability agenda through innovative business ideas and company startups. In this episode, I'll be joined by Nikhil Chouguley, CEO of Sustopia, an ESG data, risks, and reporting platform that is focused on private market funds and real assets. So welcome Nikhil. So lovely to have you join us.

Nikhil Chouguley:

Thank you, indeed. It's a pleasure to be here.

Elena Lambros:

So we had a couple of conversations around your background and your focus on ESG and sustainability. So I'd really like for you to just outline to our listeners a little bit about yourself and your business. How did this kind of climate positive business solution come about?

Nikhil Chouguley:

Great. Thank you indeed, Elena, for having me on this podcast. I'm based in London, and at the moment I'm looking at the weather outside and thinking it's rather dull and dreary. So on the cheery subject of climate, nature, ESG, here it goes. But if I may just introduce myself briefly just to put things into context. I'm the CEO of a platform called Sustopia. It's a new startup, but what I'm focusing on is ESG data, risk, and reporting platform. And at the heart and center of all of this initiative, is the end investor, people like you and I.

Do we know where our money is going? Do we know what impact our money is having on the wider climate, nature, society and conduct across the world? Do we actually know what risks our investments are exposed to? That's the whole nature of this initiative called Sustopia. But in terms of platform, before we get to the platform, I think it's interesting and it's important to understand how I got there, the journey that I've been on over the past 12 years of my life as a sustainability professional in the past 23 years of my life as a financial services professional.

Elena Lambros:

You're obviously focused on some of the really key questions that everybody is asking, particularly around ESG and data. So yeah, I'd really love for you to expand upon your last 12 years or even before that.

Nikhil Chouguley:

Yeah, thank you. If I may describe my background. So I'm a banker, financial services professional with bit of a Mowgli upbringing, Mowgli from the jungle book. And the reason for saying that is, well, as a one-year-old, I was adopted by a monkey, she taught me how to walk. And as a teenager, my favorite pastime in the foot of the Himalayas, was to track a leopard that lived pretty close to my home. So I've always been one with the nature, I've always valued nature. Now what I'm doing is putting a financial value on nature, financial value on climate, financial value on carbon. How are these natural resources, these intangible assets, how are these being priced? How are these being measured as part of a financial services ecosystem? And that is the whole concept and idea behind Sustopia.

Elena Lambros:

Can I just say, first of all, what an amazing background. I mean coming from the way that you described as being one with nature to coming through to financial services, do you maybe just touch on how that even happens?

Nikhil Chouguley:

Sure. I mean, look, as all good Indian kids do, you sort of follow your father's path. So I became a chartered accountant despite living in the Himalayas, wanted to have a bit of an adventure around the world, followed my heart. Thought accountancy was, yeah, there, meh. But the reality is I wanted more. So I followed my heart and I ended up working with a UN project in Paris, UN-affiliated project in Paris that was more in the social sector. And following on from that, having a financial skillset, understanding how the society needs capital, understanding how the nature needs protection, and then putting a lot of banking and a lot of financial services experience on top of that, has helped form the building blocks of my career, the building blocks of my thought leadership process and has also shaped me as an individual, as a father, and as a fellow professional in this, as a global citizen of this world.

But before I start talking about the product and what we're building, if I may, I wanted to share with you a bit of background on my professional experience in addition to my personal story and how I've meandered my way across the world from Delhi to Paris, to Edinburgh to Barcelona and now London.

Elena Lambros:

Well, absolutely, I'd love to hear that.

Nikhil Chouguley:

Thank you, indeed. I mean, effectively my career began with an organization called Ernst & Young Accounting that's created a very solid foundation to respect law, to respect regulations. And more recently I've been the global chief operating officer at Citibank where I have delivered the sustainable finance infrastructure at Citibank. And the experiences at Citibank and Deutsche Bank, the CEO of a private equity fund that was investing in natural assets, I've had a lot of exposure to sustainable assets, but I also realized that actually there are huge gaps in how sustainability is measured, risk is quantified, how regulations are applied. There are a lot of gaps and a lot of misunderstandings that exist in the industry. So yeah, that's what I'm here to talk about. How did systems come about?

Elena Lambros:

Yeah, how did it come about and how do you start to fill those gaps? Because I feel like that's really kind of at a critical point in the journey to discuss that. I mean, there are so many changes happening around what disclosures look like or how people understand what climate change or sustainability is. It can be very difficult to have that consistent, transparent understanding. So therefore maybe we just move on, how did this idea came about? What was the need you were trying to address?

Nikhil Chouguley:

Experience helps you identify gaps. Regulation helps you get those gaps financed and client need puts a commercial spin on things. So using these three concepts of what did I see, what did I observe in the banking space? So after the financial crisis in 2008, I was a bit disillusioned with how the markets, the banking world first was working. Father of a newborn child, I decided to effectively, I was a CEO of a private equity fund invested in teak and also other agroforestry assets in Malaysia. And having actually seen the assets, I had the pleasure of flying in a helicopter over the plantation assets. This was about 12, 13 years ago in the Borneo, in the Malaysian rainforest, actually I saw a desert. I saw a desert of palm oil plantations and nothing else, millions of acres. And there in the middle of all of this was a little oasis of tea plantations mixed with virgin rainforest, mixed with an orangutan reserve and then basically a eco hotel with an established community of about 500 people living on the plantation.

So to me, this is how we can make money from nature. This was an eye opener for me as a 30-year-old. Now since then, I've been involved in more investment banking and capital market side of things. Looking at the big tier one banks. Unfortunately here as well there are gaps in how they classify and manufacture products. I've seen instances of greenwashing, I've had to deal with the regulators in Hong Kong and in Malaysia to explain why this has happened and how this would not happen again. Thankfully that was addressed without any reprimand. The reality is organizations are still learning, especially the bigger financial organizations are still learning how to use data, risk and understand what the client is doing. So there have been instances of greenwashing. There have been instances where financial risks, there's a coal related company, I won't tame their name, but effectively I was in a position to use the product governance process to ensure that the risks associated, the financial risks associated with the climate impact of this company meant that I could remove this company from the investment list.

So there are risks, there's greenwashing, but thankfully, under the EU's leadership and the developments that have taken place, we have a number of regulations which most bankers hate, but I love, I think regulations are great. They help you articulate what is going on, how the authorities see things, and they help bring transparency and standardization. So I love regulations. And given the fact that you are working this risk space and reg space, and then I'm keen to hear from you as well, how is this impacting how EU and Australia and taxonomy and all of these climate risk related regulations, I'm sure they are impacting you as well?

Elena Lambros:

Yeah, absolutely. And I am with you there. I actually love regulation as well, and I really like the way that you put it there in terms of helping people articulate where it is that they currently are and where it is that they want to get to. Because I think unless you can kind of understand what that looks like, it's very hard people to make the decisions that they need to make and for the capital to flow properly into the areas where we really need to see capital flow.

So I guess if we kind of think about that, and then I really loved hearing that story about you flying over the helicopter and seeing the desert in a little oasis. And I can imagine that impact that would've had on someone who grew up in that kind of story that you told us as being one with nature. So if I think about all of those different aspects and then we think about the data, how does what you've built now, how does that work? And particularly if you think through all of the different data points that there could possibly be and how people try to interpret this and make sense of what it's quite a broad range of decision points and data impacts.

Nikhil Chouguley:

Indeed. Now, regulation, again, love it or hate it, is also shaping data. So there's a regulation called EU taxonomy that has manifested in a set of sub-regulations called European sustainability requirements directive. And that effectively means 1,200 odd data points are required to be assessed.

Elena Lambros:

So just a few.

Nikhil Chouguley:

Yeah, just a few. Just a few. I think this is where we need to put things into perspective. You can split hair and still get no value. So this is where the pragmatic banker in me sort of wakes up and says, "Okay, do you really need 1,200 data points to determine whether a listed or an unlisted company is sustainable?" My assumption, my conclusion as a purist is yes, but I'm not a purist. I'm not a climate scientist, I'm a banker. You look at risk, you look at material reality, you look at time horizons. Not everything works as per a clockwork science experiment. Finance is not rational. So the reality is, whilst I welcome ON data and a lot of data, in my opinion, a lot of data is actually disruptive when it comes to helping achieve the net zero agenda or the sustainable finance transitioning that we're trying to achieve, or in fact fund viable ventures in social innovation, in medical innovation or tech innovation. The reality is you can have death by data.

But if I may just elaborate on one more point here. So regulations have created the necessary, have shaken the strategic boards into action. They are now responsible for setting net zero strategies. This has created capital. I had the pleasure of actually deploying a lot of capital in financial organizations, but now there's a lot of money available in the ESG sustainability space. So there's a strategic need, there's capital, and clients are waking up, investors are waking up. So there's a lot of commercial money to be made here. So from that perspective, I think we are sitting as an industry and we're looking at industrial revolution, the green industrial revolution 4.0, but it's not going to be led by agriculture, it's going to be led by technology. It's going to be led by data creation. It's going to be led by pragmatism, and it's going to be led by the next generation of intergenerational work that is transitioning.

You have a lot of wealthy people who are transitioning trillions of dollars worth of wealth to a younger audience. And as a banker, I realized that the younger audience, the millennials, the 30 year olds, maybe even the 40 year olds do care about sustainability and they're willing to forgo profits from certain areas that are carbon intensive to make less money in the short term, but at the same time invest in alignment with their values and their view of the world. So we're looking at a very interesting time in human history and in economy and in finance where the behaviors as to how money is invested and the valuation of money, is it just about return of investment or is it about return on equitable investments? So there's a fundamental shift in the way the younger generation's thinking. That's the whole reason why I saw tremendous opportunity in the market.

Data, there's only 30% of the data available at the moment. And when you look at data across different organizations that we invest in, I think listed companies are good in Asia. I think there's a lot of gaps in Asia when it comes to listed companies, but when it comes to unlisted companies and real estate assets and looking at their sustainability impact, looking at their climate risks, there's nothing that is available in that space. And therein lies the opportunity and therein lies the need for technology, banking and sustainability professionals. And I've effectively drawn my Venn diagram there to come together, work together, and solve the bigger problems. And these are long-term problems. You won't make money immediately, but you will make money, plus you will also generate a return in the form of a non-financial impact. And that is what I love about my job.

Elena Lambros:

Yeah, no, I can tell that you love it, and I do when I think about that, and I think about all of the challenges in terms of you people really want to invest in this area and there is that kind of move towards investing with your values, but there is still real capital to flow around and people want to make the best or more strategic choices that they can in terms of how they invest. For you, what would success look like in terms of using your company to help drive that investment and that alignment with people's values and I guess shifting the world or moving towards the energy transition and creating the kind of cleaner, greener world that everyone is talking about at the moment?

Nikhil Chouguley:

Yeah, this is a work in progress to be fair. I think success looks like addressing the fundamental challenge of lack of capital, lack of green capital. There's a lot of capital that is sitting at an investment banking level, but they don't really know how to deploy this, right?

Elena Lambros:

Not in terms of the green capital particularly?

Nikhil Chouguley:

Exactly, yes, yes. Primarily green bonds are being used to finance companies that are transitioning their supply chains, their production and engineering processes. That's great. And there's money that is being used to transition. But the reality is listed companies, large companies, are basically super tankers. They do not change overnight, and they will need technology. They would need clean energy, they would need other sources of innovation that's going to happen outside of their ecosystem. So the point I'm trying to make here is the path to sustainability is not by changing, it is, it is. Part of it is by changing larger organizations, absolutely, they're a huge part of the change of direction. But the greater impact when it comes to helping achieve sustainable transitioning is through energy. For instance, at the moment I'm working on hydrogen and not manufactured hydrogen, but white hydrogen as in mined hydrogen, naturally occurring hydrogen. I was involved in a venture where we looked at plastic bottles, pets being upcycled to produce polyester effectively plastic bottles being used to produce clothing, polyester clothing,

Elena Lambros:

Which feels like a good outcome for a plastic bottle, doesn't it, to ultimately end up as clothing?

Nikhil Chouguley:

Rather than end up in a landfill. It adorns my suit. So it's there, it's nice. It's good because one of the biggest things that I fear, so I was in Delhi recently and just outside of Delhi is the world's largest, in my opinion, rubbish mountain. It's about 65 meters high. This is what apocalypse would look like in my opinion.

Elena Lambros:

It's quite confronting, isn't it? Just if you have that visual in your head.

Nikhil Chouguley:

Yeah, I mean that rubbish dump leaks methane, and now it's burning because of the high temperatures in Northern India at the moment. There's a bit of a heat wave going on. So we are living in a world where climate change is staring us in the face and saying, here we go., This is the future of humanity. We have all of these pollution, waste, greenhouse gases emission challenges to deal with, but I'm not really a person who is seeing the... And there's a crisis on, but I'm seeing the opportunity in this crisis as well. Here to me, success looks like looking at this billion dollar portfolio of investment opportunities, being able to create ESG data as per regulation. Creation is a huge challenge, so I'm using carbon accounting tables. I'm using HR data and using geolocation data on assets of a company to create sustainability metrics as per the SFDR regulation. Aggregate these metrics for a company into a fund, and then on this fund generate the necessary regulatory and client reports.

So this is what is happening. And effectively with this billion dollar asset portfolio of energy assets, solar, wind, everyone knows about those, but white hydrogen looking at plastic waste, looking at carbon credits, very interesting infrastructure developments in terms of district heating, shared infrastructure for when it comes to sustainable real estate. There's a lot of cool things that are happening in industry, but the reality is these ventures need funding. And to me, success would look like having a optimal cost-effective framework in place to be able to classify these industrial activities, these investment opportunities into sustainability data points, aggregate them at a fund level, classify them appropriately, and then raise capital against these green labels. And once you've got the appropriate green labels, then the client that is investing in these can trust these labels. The client that is investing in these green companies, in these green assets can also get the necessary reporting on what is the financial impact that's already happening, but what is the non-financial sustainability impact of their investments?

What is the greenhouse gases emissions that have been avoided but has been the positive impact on biodiversity and deforestation? Has this particular venture improved water quality, air quality? Has it improved gender pay gap? Has it improved instances where tax evasion and breaches of labor laws and human rights are happening? So here's a very powerful opportunity to really put the end investor at the center of the whole process, and that is what success looks like, empowering the end investor and also the retail investors such as you and I, to understand where our money is going, how that money is being used to do good and where the risks that are associated with that money. And that's what success looks like to me.

Elena Lambros:

I think that sounds very successful, and I do thinking through all of those data points, but having those really clear ones that you were measuring so people can really make again, that kind of decision based on their values and also choose how they invest their money. I mean, that's how we're really going to essentially get there in the end, because this is all sort of technology that needs support and all sort of different ways of ultimately moving toward net zero. So I love that. Thank you for that really great explanation of what it looks like. So then what do you really think is the key to reimagining the current systems or changing the game on top of everything that you've spoken about already?

Nikhil Chouguley:

Technology is going to be a key enabler.

Elena Lambros:

Yeah, it will be.

Nikhil Chouguley:

Capital and technology. Yes. I think capital at the moment is slowly making its way down to these different alternative asset types that we just talked about.

Elena Lambros:

Do you think people are getting less risk averse?

Nikhil Chouguley:

It's difficult to say because I think the older generation, which actually owns this capital is in my opinion, risk averse. And it's natural. They're closer to the transitioning phase of their lives. And so therefore, I think at the moment capital is risk averse. Financial advisors that are advising how to invest this capital also risk averse because there's genuinely is a lack of true understanding. There are no true plug-and-play financial models in place, unlike liquidity as well as capital risk and interest risks. Those models are quite well developed. But sustainability risks, climate risks, nature-related risks, these are not very exact evolved models, plus these are longer term models. So the reality is at the moment, the current capital is a bit risk averse, but as transitioning of this capital takes place as more climate aware and nature, positive investors sort of start popping through the woodwork as the intergenerational wealth transfer takes place, in my opinion, capital will become climate and nature aware.

I don't think, in my opinion, climate and nature are material risks for certain asset types, for certain companies in certain geographies and for certain other asset types, it's irrelevant. For instance, for real estate, I think climate is a significant risk in certain countries over certain time periods. But when it comes to nature, actually nature has very little applicability when it comes to technology. Similarly, climate has very little applicability when it comes to technology. So the reality is we need to really understand what sectors we are investing in and where these companies in these sectors are based. What are the investment time horizon that we're looking at, and also understanding the needs and preferences of the investor who's looking to invest in these companies.

So there are multiple overlapping factors that we need to look at to determine whether a certain investment is risky from a climate or a nature perspective, and also whether the investor's risk appetite aligns with these risks or not. So it's a very difficult question to answer in one sentence, is what I'm saying. I'll take a step back. The way you can answer this is by asking the end investor, what are your sustainability preferences? And that's exactly what we have done. We have created a questionnaire. To date, everyone's been trying to solve the risk paradigm first. Everyone's been trying to solve the sustainability ESG risk ratings first. It's like, okay, that's good. It gives us an indicative view of how risky or how much of a positive or a negative impact this particular investment makes.

Elena Lambros:

It's a way of thinking that people understand, I guess, isn't it?

Nikhil Chouguley:

I agree. But I'm flipping the narrative and say this end investor, what values do you care about? What sectors are you interested in investing in? And do you understand how climate, nature, workforce, conduct risks are affecting your portfolio at returns? So I come back to the concept of empowering the end investor first, and then because now you understand what your client cares about, you can then start creating financial products. And for those financial products, you can extract or create the necessary ESG data on which you can run risks as well as financial modeling. So coming back to the key question in terms of what is needed, I'd say capital is needed, but technology is needed. In particular, I'm a big champion and a big proponent of blockchain, generative AI, and eventually quantum. And these are technology stacks that are built into the Sustopia platform. Blockchain, why? Because at the moment, it costs a lot of data for multiple parties to exchange the same data.

You've got around 100,000 listed companies around the world and about 5 million unlisted companies around the world that financial institutions invest in. Now, all of these organizations are publishing the same data. Why are they having to publish it multiple times to multiple data vendors? Can this not be just done once on a trusted blockchain network? That is one bit of innovation and disruption that we're bringing into the industry. So we have a blockchain underlying data framework and partner to capture information on the blockchain. Now that the data's there, trusted, secure, now you can start running generative AI algorithms on this to perhaps write a risk analyst report, to write an equity analyst report. You've got financial data, you've got sustainability data, you've got climate change models, you've got long-term carbon prices. You've got real-time sentiment data. These are very powerful data sets. We haven't built this as yet, but effectively, this is how I imagine the future of a equity analyst is going to be. They're going to look at their companies, they're going to have a generative AI algorithm helping them write a buy, sell, hold recommendation report.

This is how we're looking to disrupt and really change the game as to how climate, nature, financial and non-financial data can combined together to make good decisions, to make good investment decisions and shape how capital flows through to companies. And then in the process, what you're going to do is have a very advanced what framework of data, of processes. And if you combine quantum computing, can basically start modeling weather and how short-term weather patterns will affect the short-term commercial valuation of company. So let's imagine there's a weather event and you've got floods that are expected because it's expected to rain. Let's imagine we were able to predict the device scenario. Certain companies whose cash flows, whose trade and whose economic operations would've been disrupted, if you could have used weather modeling as part of your risk and decision-making scenarios, you would've predicted that this much amount of rain would've resulted in X amount of disruption. It would've sold the stock in that company and bought it back maybe two weeks later when everything is stabilized.

So this is the kind of innovation that I think will finally make its way, but at the moment, the technology doesn't support it. And when quantum is commercially viable, when quantum is being combined with generative AI, with trusted data on the blockchain, we're looking at a very different ecosystem. We're looking at a very different banking world. We're looking at a very different asset management world. And I'm very excited about how technology is going to help us make money, solve the bigger problems that humanity is facing in the form of climate and nature, and at the same time ensure that there is trust and transparency in the system. So this is the world I'm looking forward to.

But the reality is there's always a yin and a yang. What we need to do is also protect nature and humanity so you can go overboard and get very trigger happy with using technology. I've used blockchain and I've used generative AI, but the reality is what we're trying to do also needs to be equitable and balance how we make money at the cost of not disrupting societies and communities in nature. So finding the right balance when you deploy technology is also a big ethical question that is at the forefront of my decision making process.

Elena Lambros:

That's amazing. I mean, so many considerations there and really actually very exciting technology that will be able to help you make and balance out all of those decisions because I really to degree that that equity question comes into it, but using everything at your disposal to do that is really be pretty exciting. It's pretty exciting time definitely to be thinking through this, and I'm glad that someone like you is thinking through all of these issues and working through it. That's also really lovely to hear. So one thing I ask all the people on the podcast is, outside of all of the amazing things that you're doing in your work life, what is your own personal commitment to net zero just in the next 12 months?

Nikhil Chouguley:

Indeed, it's a tough question. No leisure travel, no transcontinental leisure travel. So I'm not really flying, I just use my car. It's a hybrid and I travel across Europe and the UK. That's what I'm doing from a local vacationing perspective. But when it comes to business travel, I'm conscious and I'm aware of where I'm flying, what I'm flying for, and then I'm conscious of the carbon footprint, and I'm also trying to now develop a carbon offsetting solution. So I have nature related projects, I have my own farm. It's a pleasure, it's a privilege. But the reality is I'm looking to offset my own carbon emissions, but I'm also trying to include that feature within Sustopia. So you as an end investor, X is your carbon footprint, let's say 1000 tonnes, and to offset that 1000 tonnes here is your $50 a year cost to offset those thousand tonnes worth of carbon emissions. So that's the kind of product that I'm trying to develop for myself.

Elena Lambros:

Well, that's a great product, and I think everybody would think about that from an individual perspective. It's very hard to work out your own strategy to reach net zero, but you have quite a few considerations along the way with some clear glided lines. So I really like that. Thank you. Out of all of the things that you've spoken about and there have been so many interesting points, what would be your one key takeaway that you want our listeners to take out of this conversation?

Nikhil Chouguley:

I think there's a very simple formula to achieving a sustainable equitable world. First of all, you need to educate yourself. Do you truly understand what is sustainable? What is not sustainable? What is a climate risk? What is a nature-related risk? So please, please educate yourselves. That's the first ask. Now that you know what this means, start measuring it as an individual. You need to be aware of it. As a corporate institutions, you need to be able to measure your impact, positive and negative, using approved standards and methodologies. And now, once you know what this impact is, once you know what this valuation of the measurement is, then you can start transforming your processes, your behaviors, your supply chains, and your organizational DNA. So educate, measure, transform, and in the process, you would make a huge impact on the narrative of climate change. You'd make a huge impact on how organizations react to that narrative. You'd make a huge impact in actually cutting carbon emissions and helping the world hit net zero by 2050.

Elena Lambros:

Thank you. I think on that note, it's so clear and so logical. Thank you for joining. Thank you for sharing everything that you've worked towards and what you've delivered, and it's been a really interesting conversation.

Nikhil Chouguley:

Thank you for having me on this book podcast. I've loved it as well.

Elena Lambros:

Thank you for listening. I hope you found this episode both worthwhile and insightful. To learn more about our podcasts, visit ashurst.com/podcasts. This Game Changes and Transition Makers mini series follows on from our 30 for net zero 30 series, and I would encourage you to click on the link in the show notes to find out more. To ensure you don't miss any future episodes, subscribe now via Apple Podcasts, Spotify, or wherever you listen to your podcasts. And while you're there, please feel free to leave a rating or a review. In the meantime, thanks again for listening, and goodbye for now.