A Quick Start Guide to ESG Data Collection for Private Equity Investors

Strong points:

  • ESG attention is increasing and will likely intensify over the next 18 months.
  • While data on public markets is abundant, data on private assets remains elusive; PE managers are obliged to collect their own information using the frameworks available.
  • Many ask, “How can I start collecting ESG data from my portfolio companies in order to become more attractive to investors?”

Investor demand for ESG reporting is growing

The demand for reliable environmental, social and governance (ESG) data and reporting is accelerating around the world. A contributing catalyst is the fast approaching July 2022 deadline for the EU’s Sustainable Finance Disclosure Regulation (SFDR) reporting, which aims to provide investors with better insight into sustainability risks and facilitate comparison of the sustainability of financial products. Although the first level of the Disclosure Regulation has been in force since March 2021, additional requirements will be required from January 2023. Learn more about EU SFDR.

Another catalyst is the increased demand for ESG reports from sponsors and asset owners. Investors say this information is more important than ever, but getting ESG data from holdings remains a challenge for private equity firms. Recent search[1]
reveals that most LP investment policies (70%) incorporate 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.

Get 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 companies in private markets define their strategy for collecting and communicating ESG information.

ILPA(Institutional Limited Partners Association) ESG Assessment Framework

The ILPA framework is a resource for private asset managers and sponsors looking to assess and understand the different stages of ESG integration. It is designed to inform conversations about goal setting and measure progress in ESG integration over time.

SASB (Sustainability Accounting Standards Board) Industry specific

The SASB Engagement Guide provides guidance on how managers and asset owners can use SASB standards to inform and improve their engagement with businesses. The SASB standards identify the sustainability issues most likely to impact the financial performance of companies in 77 industries. For each industry, the guide poses questions investors can ask to facilitate a more comprehensive and robust assessment of long-term risk and value creation.

GRESB (Global Real Estate Sustainability Index)

Companies and other entities in the real estate and infrastructure sectors use the GRESB to measure their ESG performance in a standardized and globally recognized framework. Additional information is available from GRESB.

Take a forward-looking approach now

In addition to these reporting frameworks, getting feedback from your investors is key to developing a holistic ESG reporting strategy. Recently, we have seen a surge in demand for diversity, equity and inclusion (DEI) data at both the portfolio company and general practitioner level.

Start with a small but meaningful set of metrics that your portfolio companies can easily and accurately measure. Expanding your disclosures with the best data available now will make year-over-year comparisons easier and more useful for investors when they become necessary. Centralizing this information along with the rest of the financial and performance data you collect and monitor from your portfolio companies makes it easy to access, analyze, and report. You will not only be able to view historical data, but also derive additional insights into ESG performance trajectories over time.

Next steps

Learn more about our ESG collection and reporting solutions for private markets, or get a “best practices” review with our experts:

Learn more

[1]

Source: Survey of Sponsors (LP) by Bain & Company and the Institutional Limited Partners Association (ILPA): https://ilpa.org/bain_esg_report_22/



Posted on April 11, 2022 by Alex MerolaExecutive Director Commercial Strategies, ESG & Private Markets


IHS Markit provides industry-leading data, software and technology platforms and managed services to meet some of the toughest challenges in financial markets. We help our clients better understand complex markets, reduce risk, operate more efficiently and comply with financial regulations.


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.

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