While analyzing what the optimal disclosure was for companies in our first letter to the SEC, we realized that the corporate disclosure problem was being misconceived in a completely backwards way when we began to grasp that the real problem with disclosure was that institutional investors disclosed nothing. How could companies know what to disclose if they have zero feedback from their investors?

At the end of the day, the role of the market is price discovery. Sustainability price discovery has not happened because the institutional investors do not share sustainability feedback and sustainability / ESG data and ratings are proprietary, offering essentially no feedback too.

Full Market Disclosure began when we realized that we all need to get climate disclosure right immediately or the sustainability / ESG business will be worth zero when the first climate shocks start. The only disclosure that generates sustainability price discovery is full sustainability transparency for each transaction. Interestingly, this also ends greenwashing too .

We published these ideas in our Impact Alpha November 29, 2021 piece, ESG Data is a Public Good. Let’s Open It Up . The article was republished on the Chartered Alternative Investment Analyst Association’s blog and on GreenBiz.com.

Initially, in early 2016, when we started thinking seriously about sustainability arbitrage, our idea was to trade boom-bust flows of capital into sustainable investment indices, particularly with the rise of millennials and robo-advisers, and state our positions publicly so eventually capital wouldn’t be wasted.

But as we dug into the problem, it became clear to us that the entire price formation process was broken, and this was ultimately responsible for the low level of sustainable securities volumes in the markets today.

In early 2022, following the insights generated by Full Market Disclosure during 2021, it became clear to us that we would need to become activist equity and fixed income investors to fix the problem, as described here under “Strategy.”

The good news is that the solution is super simple - institutional investors simply need to disclose to each other and their investees their entire sustainability analysis and update that transaction by transaction in as close to real time as possible.

Once that begins to happen, then ESG data will obviously have to become a public good for everyone to interpret Full Market Disclosure. And then, the wave of innovation in finance will be just spectacular!

So, we must ensure that all of the talent and ideas can happen without any hindrance. And, lastly, we need to be sure that our entire financial system / economy doesn’t crash during the early climate shocks by guaranteeing our freedom to fix and adapt software by having our technology base adopt the GNU General Public License 3.0.

We want to partner with asset owners & managers to quickly scale our ideas up, because the best way for sustainability price discovery to work is if we have tens of thousands of capable, professional, regulated asset owners & managers using it overnight.

As we wrote in Impact Alpha, “The first large, reputable firm that does a solid job on brokerage and fund management in climate and adopts Full Market Disclosure will likely become the leader in ESG and climate finance.

Smart, young people across the world would gravitate to this bold organization. Clients would applaud the move as it once and for all ends any question of greenwashing. Regulators would quickly recognize and promulgate that Full Market Disclosure is the core standard to follow, as all other standards and data regimes can rest on top of it.

Financial organizations around the world would have no choice but to quickly copy this firm and adopt the Full Market Disclosure standard as clients and young staff will demand it and regulators will eventually require it. The vast quantities of data and learning would reframe the world’s understanding of climate and ESG risk and greatly facilitate the transition to a sustainable future.

The secret to making money from climate finance, then, is not to try to make money from it initially. The first firm that does this well stands to become the leader in climate and ESG finance. I am curious to see who does this!”