Taking Strides in the Right Direction
Across the financial services sector, ESG looms large. LPs and other investors want to know their investments are going to the right places; businesses with a meaning and purpose, seeking solutions, not contributing to the looming social and environmental crises.
But as pressure on GPs mounts, with demands for accurate and clearly articulated ESG credentials, regulators are warning that empty promises and greenwashing will no longer be tolerated and that real, tangible action is expected.
The ESG Data Market is Fragmented
For a number of years now, the financial services sector has busily set about identifying and attempting to measure ESG credentials of managers and funds, using a variety of different terms and measurements to do so. Many independent ESG data providers have emerged, most of which employ different methodologies, varying scope of disclosures and inconsistent metrics too. So how can investors clearly understand and compare a range of portfolios to identify which of those are either favourable new investments, or part of an existing portfolio which may need work to meet ESG goals? How too can GPs and fund managers harness the power of their ESG data and present an accurate picture to the market and their LP community.
Collaboration and Convergence is needed
Key players in the private equity sector, including leading LPs and GPs, have collaborated to try and solve some of these common challenges around ESG data and metrics. They point out that the problem is not a lack of frameworks in the ESG space, it is that there are too many frameworks to choose from. This fragmentation means there is no critical mass in any one area or framework. LPs currently have no means of comparing standardized data for comparisons across their portfolios, GPs are dealing with multiple different requests for a variety of ESG data points from LPs and portfolio companies have a myriad of ESG frameworks to consider and choose between.
The group behind the initiative believe that collaboration on a set of common KPIs aims between a group of GPs and LPs on a small set of core metrics for underlying portfolio companies will allow for the creation of benchmarks that should benefit the whole industry.
The ESG Data Convergence Initiative
The result, the ESG Data Convergence Initiative aims to improve transparency for LPs across GP portfolios, and across portfolio companies for GPs. All parties will be more accountable. The agreed standard metrics should also highlight performance and how this correlates with ESG practices, which will allow LPs and GPs to see what good looks like.
The group have agreed a set of common metrics which are around GHG emissions, renewable energy as a % of energy use, diversity of board members, both gender and under-represented groups, work-related injuries, which includes injuries, fatalities and days lost due to injury, net new hires and employee engagement levels.
Dasseti Clients can Benefit
All moves towards a better use of data are great news for the sector and great news for us here at Dasseti. With a platform like ours, that can be adapted to meet the data request and response needs of any LP or GP, sent and received in any format, either as a standalone ESG and diversity research exercise, or as part of an overall ODD, RFP or monitoring exercise, meeting standardized ESG and DEI data needs is straightforward. LPs can assess GPs, GPs can assess portfolio companies and results can be extracted and presented in custom dashboards that allow for easy comparison.
A frictionless exchange of data is fundamental to the whole ESG due diligence process and can improve investor relations and really set a GP apart from its competition.
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