Greta Expectations

Koaloo.Fi Taking ESG Data Far Beyond Compliance

Koaloo.Fi’s online supplier financing solution is aimed at adding profitability and performance to the list of benefits afforded by ESG-enabled trade. We talk to Alex Lheritier, the company’s Co-Founder and CEO, about the inspiration and motivation driving TMI’s first Innovation Lab sustainability solution entrant.

“We make ESG profitable.” As taglines go, it’s clear and concise, as it should be, but it’s one that Paris-based Koaloo.Fi believes really will appeal to the thousands, if not millions, of companies globally that are sleep-walking towards a minefield of new corporate ESG reporting regulations. 

Of course, these companies first need to wake up to the fact that regulators are indeed beginning to demand that certain companies start collecting an ocean of ESG data because they fall under their new ESG reporting regulations. But when those affected do open their eyes, and see the likes of the EU’s Corporate Sustainability Reporting Directive (CSRD) and the 1,300 or so other mandatory ESG reporting regulations being imposed worldwide potentially coming their way, many will panic.

They need not. Lheritier says his platform, launched in 2023, has the technical means, and the scalability, to deliver the right data, regardless of which regulator is demanding it. What’s more, he believes the way it achieves it can make sustainability profitable for the whole value chain, with Koaloo.Fi “transforming ESG compliance from a cost-centre into a profit driver for both companies and their suppliers”.

From disappointment to dynamism

ESG compliance is often viewed as a costly, complex “mission impossible”, says Lheritier, “especially when sourcing accurate data and KPIs from suppliers”. In essence, Koaloo.Fi assists companies to collect ESG data from their suppliers while also helping them to invest in, and improve, their overall ESG performance. The reason for focusing on the supplier side, he says, is simple: on average, they account for 90% of the total environmental impact of a business.

The story starts around two years ago, when Lheritier was working for a TMS vendor, and a major client had just publicly announced its ESG commitments. With the vendor already covering many of its client’s suppliers, he proposed a co-creation project to help optimise the exchange of ESG data between buyers and their vast supplier-bases. The answer was no.

“It was seen as too complicated to acquire the data from so many suppliers, and there was nothing compelling the client to source this data. And, what’s more, none of its peers were doing this,” he recalls. “To be honest, I was a bit disappointed.”

That feeling was soon turned on its head, the client in effect having provided Lheritier with important insight into how ESG data was being handled. “It confirmed that obtaining the data from a broad range of partners is seen as too complicated. I thought there must be some value there to explore further. Then I realised that if something was to be achieved in this space, it needed to be driven by a sense of urgency – and that came from the EU’s CSRD as the first European regulation forcing certain companies to share their environmental impact data.”

While exploring ideas, Lheritier also realised that, because many firms are essentially benchmarking each other as buyers and suppliers, the market was calling out for a solution to help that process. “And that’s where Koaloo.Fi started. Supply chains could be key to the trade-off between EBITDA and ESG leadership; companies could become both sustainable and profitable.”

‘I have an idea…’

Initially, the target was all firms with reporting obligations under CSRD. But it was soon understood that the geographic scope of those data obligations has been expanding rapidly. The latest rulings from China, for instance, require a wide range of listed companies to begin disclosing their sustainability performance by April 2026. “Suddenly we had at least 3,000 more companies to work with,” enthuses Lheritier.

Koaloo.Fi was formed in early 2023, Lheritier having left his TMS-vendor employer with an idea, a belief that he had a business opportunity, and “the need to do something that aligned with my own values”.

He had also amassed plenty of industry contacts. Initially, he approached former colleagues and clients, asking them if they knew of anyone with a similar idea, and if it even made sense. Then he conducted more than 80 different interviews across corporates, collecting their feedback. With the greenlight to proceed, and an even clearer idea now of what he wanted to achieve, Lheritier started building a first prototype.

To help shape the idea, speed up the development process, and ensure he had the best commercial and technical inputs all round, Lheritier necessarily brought some industry colleagues on board. These included Sabine Lochmann, former Global Head of ESG Ratings at Moody’s; Emmanuel de La Ville, Founder and CEO of EthiFinance; Patrice Hiddinga, a serial entrepreneur who built Manaos, a security services ESG platform now owned by BNP Paribas; and Antoine Fulpin, a former group treasurer at Carrefour, who also led the supermarket giant’s IHB and managed its supplier financing programme.

The newly assembled team needed to have a minimum viable product (MVP) as soon as possible. “We knew it was important to go back to the corporates we’d interviewed with something real and usable because while we were telling them that it’s a prototype, they would think it’s still not much more than an idea,” explains Lheritier. “We decided the real test would be to put a working solution in front of them, and ask: ‘Are you willing to buy it?’”. By June 2023, Koaloo.Fi had built five iterations before reaching what was considered to be the MVP.

The shaping of things to come

Drawing upon the experience of each colleague has been crucial in shaping two core elements of the client-ready platform. “The first acknowledges that to collect data from suppliers, they must receive something in return,” stresses Lheritier. “If you simply tell suppliers the solution will improve ESG performance, it doesn’t work. Our feedback suggested at best we’d get 10 to 15% of suppliers responding.”

The persistent trade finance funding gap across the world – estimated to be $2.5tr. – suggested that by linking ESG data sharing with an offer of cheaper trade financing, appropriate motivation can be found.

The improved financing offer is derived from the superior credit rating of the buyer over that of its suppliers. With the bank or FI funding its buyer client, not its suppliers, there is no additional KYC required. The buyer then simply uses the ESG data shared by its suppliers to make an offer of cheaper funding, modulating the spread according to individual ESG performance levels. The entire process is executed automatically within Koaloo.Fi.

The second core element being addressed by Koaloo.Fi is the provision of an understanding of the global mix of ESG taxonomies. A European buyer using the CSRD framework may draw a blank when requesting data from a Malaysian supplier; those suppliers may understand what’s required of their own country’s ESG taxonomy, explains Lheritier, but they may not be able to deliver on CSRD’s requirements. Across the world, this ‘lost in translation’ effect could be a major obstacle to providing correct data, and thus securing cheaper funding.

The technical expertise needed to deliver information from data was the team’s first key hire: a chief data scientist. The initial task for the role was to design a data infrastructure capable of integrating the full CSRD taxonomy with those of the 1,300-and-counting similar regulations globally. It was then a matter of establishing connections between those taxonomies.

“The reality is that many taxonomies cover the same type of data, but in different ways,” explains Lheritier. “We wanted to be able to create connections so that buyers can collect and aggregate correct supplier data, and their suppliers can quickly establish and understand those taxonomy similarities and differences, wherever they are.”

The Thunberg effect

In order to better understand these relationships, Koaloo.Fi decided to integrate a generative AI (GenAI) ‘consultant’, Greta. “I’ll let you guess why we named her that – but we have trained Greta with ESG regulation and best practices from around the globe,” says Lheritier. “Clients can now use a conversational ChatGPT-style approach to ask questions, and determine precisely what data is required, as well as how to improve their own ESG performance.”

In practice, Greta is able to analyse shared data, assessing individual supplier ESG performance versus industry peers. The output is used to make recommendations on KPIs that should be prioritised, and their required levels, to improve scores and make savings because this applies to the level of funding offered to suppliers. And that, points out Lheritier, “is how we can claim that ESG can be profitable”.

Buyers, too, can leverage the idea of ESG discounting. “If a buyer decides to use its own excess cash to fund their suppliers through Koaloo.Fi, the discount that they collect from their suppliers has to be validated by the auditor. As a commercial discount, it’s seen as a reduction on the cost of goods sold. This creates an increase in EBITDA, which can, for example, be reallocated to their supply chain. Alternatively, suggests Lheritier, it could be allocated to further supporting ESG. “Quite often, ESG budgets are not as large as management would like them to be. This is a way of reinforcing financial commitment to it.”

Big partners, bigger ideas

With Koaloo.Fi’s ambitions set at an early stage, it began working closely with AWS and Google, the services of these two IT giants enabling the development process to be expedited. As Lheritier explains: “If we’d been trying to do this all ourselves, we would probably have had to hire three times as many people as we did. But now we can be extremely agile in the way we design and evolve the platform.”

Working with Google as cloud provider enables the platform to be massively scalable. This is vital for the future success of Koaloo.Fi as it needs to be able to guarantee to its clients that, whether it onboards one or 100,000 suppliers and their data, it is all under control.

Furthermore, Google’s footprint offers Koaloo.Fi almost unlimited geographic expansion. In certain countries, client data is not permitted to cross international borders. Without Google, the time, cost and effort required to replicate Koaloo.Fi’s technical infrastructure, and to move it into another cloud provider locally in order to meet requirements, would be prohibitive.

Google is also Koaloo.Fi’s AI solution provider. While its technology is key, its appeal goes beyond its capabilities, notes Lheritier. “Google is the most advanced provider in terms of achieving its net-zero emissions target. 100% of its cloud-powered solutions are delivered by renewable energy. We want to be as consistent as possible with our core objective, which is to have a genuine positive impact on the planet.”

Tackling a ticking time bomb

Interviewing more than 100 different corporates may have been the starting point for Koaloo.Fi, but the process taught the team far more than it expected, recalls Lheritier. “There are always unknown unknowns, as the saying goes. But what we realised in the discovery process is that currently, as strange as it may seem, supply chain data on ESG does not have yet to be audited.” Indeed, a corporate sustainability report will declare that it has been audited by a respected independent but, he notes, this report typically covers only the impact of its own operational emissions; while supply chain data must be reported, independent audit is not yet mandatory.

“To us, with CSRD calling for audit of this data in three years, it seemed like a ticking time bomb, especially primed for large companies with thousands of suppliers based around the world,” observes Lheritier. “We felt there was something we could do to help the audit exercise, and we knew that ESG data was mostly used by CFOs.”

CFOs, he explains, typically share sustainability reports with investors, banks, and other stakeholders. They use the data in a similar way to their financial updates: presenting figures and profitability on a reported basis, but explaining what has happened on an underlying level.

“We expect them to follow the same logic with ESG data, so we thought about how we could apply that logic. For example, companies aggregate their carbon data, 90% of which stems from their suppliers. For the next three years, that reported data won’t be audited. But self-declaring potentially allows room for lax behaviour. But in three years’ time, when auditors check, overstatements will likely face a call for the ESG equivalent of a profit warning. That will have an impact on company valuation.”

Give me choice

The root of error can, in part, be attributed to the lack of a standard approach to calculation. With multiple different calculation methodologies likely to have been adopted by a large supplier base, aggregation will provide a total figure, but one derived from a range of underlying assumptions, argues Lheritier.

“CFOs will struggle to analyse that data. Understanding why certain numbers increased or declined, the impact of changing a supplier, and even what the key trends are, suddenly become extremely difficult to assess. And that’s one key underlying issue that we identified. We had to find a new way to consider elements such as carbon declarations.”

Resisting the temptation to “reinvent the wheel”, the solution was, again, partnership. This entailed setting up a white-labelled API-based carbon calculator to collect and validate the underlying data that Koaloo.Fi can then use to illustrate to clients, and their stakeholders and auditors, the precise direction of performance.

“Clients are free to use any other calculator if they wish. But we want to incentivise them to move from spend-based analysis, to activity-based analysis, where granular data allows for a more precise carbon-footprint calculation. We can do that by offering a single methodology on a single platform. It’s an easier and simpler option for clients,” explains Lheritier.

To ensure end-user choice, Koaloo.Fi’s platform is designed like an app store. It provides ready solutions for clients, including for supplier financing. “But it’s about providing alternatives too – and third-party optionality also means we don’t have to build these platforms from scratch,” he explains. “So if a client already has its own preferred provider, it’s not an issue. We can connect to that provider via an API because clients should not have to change provider unless they want to, because doing so is a lot of work.”

Speculate and accumulate

Building any new platform requires funding. However, the need to persuade investors to support Koaloo.Fi has until recently been off the agenda, says Lheritier. It’s unusual, but he explains that the whole operation has been 100% bootstrapped. “ESG reporting, especially around supply chains, is still at an early stage of its journey. We didn’t want to make a move until we had a platform that we were ready and able to tell a credible story about to potential investors.” With that story now fully realised, a successful initial equity raise launched in June 2024.

As a boost to investor confidence, the first client, from the luxury goods sector, is about to be onboarded. Progress is also being made with a CAC 40 corporate, as well as a large insurance group. This early accomplishment, comments Lheritier, provides further testimony “to go to investors, explain our story, and get them to believe in what we’ve known from the beginning”.

Increasing sales is now the aim. But while ESG, finance and AI are “relatively easy” topics to raise these days, the “number one challenge” for the team is identifying the right stakeholders to approach to make that pitch. “Previously, I was mostly facing CFOs and senior treasurers. With Koaloo.Fi we now need to include the CPO [Chief Procurement Officer], CSO [chief sustainability officer], the CIO [Chief Innovation Officer], and possibly the Head of IT too. And from one company to the next, the definition of ‘key stakeholder’ may change.”

Partnerships, partnerships, partnerships

Success in this endeavour, to a degree, depends on Koaloo.Fi adopting a consultative approach with clients. To boost efficacy here, Lheritier says it has developed another set of partnerships, this time with three consultancies, “because we realised that it’s not just about talking to the right people, but also having access to them across different geographies”. He adds: “I cannot overstate how important partnerships are for us to be successful”.

In Asia, Koaloo.Fi is working with Finsight Global Consulting. In Europe it works with Ascend ESG, and in the Middle East with Time4Action. These partnerships not only help Koaloo.Fi access the right people client-side, but also help map the unique needs of each territory. When required, they may also implement the solution, and appropriately transform client processes.

While there is no established partnership covering the US yet, it is on the agenda for Koaloo.Fi. However, as a startup, it can’t risk overreaching itself, says Lheritier. The North American market is moving at a different pace in terms of ESG data regulation, he explains, “and so the focus at the moment is on European and Asian clients, with their more immediate and solvable needs”.

Mapping the future

For every fintech, the business agenda must be complemented by a technical vision. “One of the things I’ve learned moving into the tech space is that you definitely need a product roadmap,” states Lheritier. “What we’ve released is only the MVP. There’s so much more to do, so we’ve created an 18-month programme and we’re working on that now and, depending on client feedback, will prioritise our effort accordingly.”

An important part of that programme is to roll out an app for suppliers. This is intended to be a motivational tool, assisting them in providing the right ESG data, but also highlighting how much money they’re saving by doing so.

This tool is a prime example of how ideas can be derived from unexpected sources. During his time in the UK, Lheritier would often see adverts urging individuals to take certain steps to improve their own credit scores. “Lenders are not demanding improvements; the adverts simply encourage borrowers to take control of their own ratings before going to lenders. Those who boost their credit score are rewarded with cheaper loans.

“We know our platform has to appeal to all users. I thought this would be a good way to encourage suppliers to be more engaged with ESG data sharing with their buyers, realising that, by doing so, they have an opportunity to save money.”

While the fundamental motivation for ESG is not to be a money-making exercise, by appealing to the common drivers of most businesses, especially in the face of an oncoming regulatory tsunami, Koaloo.Fi seems to have hit a perfect balance between commercial interests and sustainable practices.