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ESG focus is growing and will likely intensify over the
next 18 months.
While public market data is abundant, private asset data
remains elusive; PE managers are compelled to collect their own
information with the help of available frameworks.
Many ask: "How do I begin collecting ESG data from my
portfolio companies so I can become more attractive to
investors?"
Investor demand for ESG reporting is
growing
Demand for reliable environmental, social and governance (ESG)
data and reporting is accelerating worldwide. A contributing
catalyst is the fast-approaching July 2022 deadline for EU SFDR
(Sustainable Finance Disclosure Regulation) reporting, which seeks
to provide investors with more insight into sustainability risks
and to make it easier to compare the sustainability of financial
products. While the first level of the disclosure regulation has
been in force since March 2021, additional requirements will be
required beginning in January 2023. Learn more about the
EU SFDR.
Another catalyst is the intensifying demand for ESG reporting
from Limited Partners and asset owners. Investors say such
information matters more than ever, but sourcing ESG data from
holdings remains a challenge for PE firms. Recent research[1]
reveals that most LPs' (70%) investment policies include an ESG
approach. Over the next 3 years, LPs will focus their ESG efforts
on climate change, transparency, capacity building, and improving
Diversity, Equity, and Inclusion (DEI) data.
Getting the data you need
Most asset managers rely on a combination of data providers and
internally collected data to respond to regulatory and investor
requests. There are several major frameworks that help private
markets firms define their strategy for collection and reporting
ESG information.
The ILPA framework is a
resource for private asset managers and limited partners seeking to
evaluate and understand the various stages of ESG integration. It
is designed to inform goal-setting conversations and measure ESG
integration progress over time.
SASB (Sustainability Accounting Standards Board)
Industry Specific
The SASB Engagement Guide provides
guidance on how asset managers and owners can use the SASB
standards to inform and enhance their engagement with companies.
SASB standards identify the sustainability issues most likely to
impact financial performance of companies in 77 industries. For
every industry, the guide poses questions investors can ask to
facilitate a more complete and robust assessment of long-term risks
and value creation.
GRESB (Global Real Estate Sustainability
Benchmark)
Companies and other entities in the real estate and
infrastructure industries use GRESB to measure their ESG
performance within a standardized and globally recognized
framework. Additional information is available from GRESB.
Take a forward-looking approach now
In addition to these reporting frameworks, obtaining feedback
from your investors is key to developing a strategy for holistic
ESG reporting. Recently, we have seen an acute increase in demand
for Diversity, Equity, and Inclusion (DEI) data at both the
portfolio company and GP level.
Start with a modest but meaningful set of metrics that your
portfolio companies can easily and accurately measure. Developing
your disclosures with the best available data now will make
year-over-year comparisons easier and more useful for investors
when they become required. Centralizing that information along with
the rest of the financial and performance data you collect and
monitor from your portfolio companies makes it easier to access,
analyze, and report. You'll not only be able to look at historical
data, but also draw additional insights into ESG performance
trajectories over time.
Next Steps
Learn more about our ESG collection and reporting solutions for
private markets, or obtain a "best practice" review with our
experts:
[1]
Source: Survey of limited partners (LPs) by Bain & Company and
the Institutional Limited Partners Association (ILPA): https://ilpa.org/bain_esg_report_22/
Posted 11 April 2022 by Alex Merola, Executive Director of Commercial Strategies, ESG & Private Markets, S&P Global Market Intelligence
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
