By Lulu Chen
(Bloomberg) —Investors have long complained that there isn’t enough information about the non-financial risks facing companies in China and Southeast Asia. Environmental disclosures, for example, aren’t common, and where they do exist, they’re often inconsistent and unreliable.
A six-year-old data company backed by JPMorgan Chase & Co and GIC Pte says it’s learning plenty about companies without waiting for regulators or required disclosures. MioTech scrapes information and statistics from thousands of government, regulatory and corporate sites across China and Southeast Asia to evaluate companies’ environmental, social and governance (ESG) practices, including violations, pollution, carbon footprint and hiring discrimination.
Now MioTech’s parent company, Cayman-based Mioying Holdings Inc., is in the process of raising about US$150 million at a valuation of US$1 billion, said co-founder and Chief Executive Officer Jason Tu. The goal is an ambitious one, considering that funders have been shunning China-related ventures, but also an affirmation of the growing interest in ESG in the region. Moody’s Corp., billionaire Li Ka-shing’s Horizons Ventures, ZhenFund and HSBC Holdings Plc have already invested, and MioTech has raised about US$100 million in previous rounds.
“People think that there’s no data on ESG in this region,” said Tu. “That’s a misconception. There’s a lot of data, it’s just not organised.”
But collecting and organising that information can be sensitive in a country like China, where big data companies have been penalised for using bots to scrape personal information online. Underscoring the risks, the government-backed Legal Daily reported earlier this year that an unidentified company was fined 40 million yuan (US$6 million) and one of its executives was sentenced to a seven-year jail term.
In order to avoid legal pitfalls on data collection, MioTech has confined its scraping to public sources. It won’t harvest data from sites that require a login, it doesn’t gather personal information and doesn’t hide the fact that it’s using bots. Its satellite images also come from public channels. The company’s data protection officer has a legal background and a team to ensure compliance with regulations on information gathering and storage, said Tu.
Those precautions have still left MioTech with 68,000 data source pipelines. The Hong Kong stock exchange for example, is one. China’s central bank counts as another. Algorithms sort the harder-to-digest information scattered across tens of thousands of government and company sites. Sometimes regulators might distribute photo files of penalties levied on companies, so MioTech uses image-recognition technology to identify and catalog that data.
Along with companies in Greater China, MioTech covers public and private companies across the US, Europe, Asia, and Australia, capturing information about water pollution, nitrogen dioxide emission levels, and discrimination complaints, among other metrics. As it expands, it plans to add employees in China and Singapore, increasing its workforce by about 67% to 500 before the end of the year.
“Data plays a critical role in any investment decision process,” said Jennifer Wu, global head of sustainable investing at the asset management division of JPMorgan. “We find MioTech’s expertise in the China ESG data space to be unique and valuable, thanks to its technology architecture and Chinese language-based data science capabilities.”
As ESG investments have grown to US$35 trillion, the demand for data has boomed. Roughly 160 firms, including MSCI, the three biggest corporate-credit rating firms and Bloomberg LP, the parent company of Bloomberg News, sell sustainability ratings and data to money managers. According to researcher Opimas, the ESG data market could reach US$1.3 billion this year. MioTech generated about US$15 million in revenue last year.
The big global firms also compile data on Chinese companies, as do domestic firms, including SynTao Green Finance. The country has also been taking steps toward more uniform and, eventually, compulsory disclosures.
For global ESG investors though, the lack of information is only part of what makes it tricky to invest in China. China faces sanctions and trade restrictions from the US and some allies over alleged abuses including the detention of Uyghurs in Xinjiang and a jobs transfer program that sends ethnic minorities in the region to other parts of China — a policy the Biden administration says amounts to forced labor. (China denies charges of forced labor and other human rights abuses.)
MioTech says its approach is surgical and company specific, for example, deducting points for companies if abuses or violations are documented.
For Moody's, MioTech’s data enhances existing products like CreditView China, its tool for credit assessment and benchmarking Chinese companies globally. “Their information can help expedite our own development of tools that provide risk and credit analysis in China,” said Min Ye, managing director and head of international at Moody’s. “We can leverage their information to advance our own services.”
Financial institutions account for about 20% of MioTech’s clients but 70% of its income. Among them, nearly two-thirds are global. The rest are from China. “ESG in Asia is just getting started but everyone sees the potential in data,” said Tu.
© 2022 Bloomberg L.P.