Carlyle executive complains of firms’ ‘fatigue’ over ESG reporting framework
Too many different data standards are wearing out firms, according to the private equity firm’s Megan Starr
(Private Equity News) – Financial services firms have “framework fatigue” as confusion reigns over which reporting standards to use when measuring ESG performance.
“One of the challenges we have in ESG data and this larger space is that in pursuit of our overall goal, which is a set of meaningful performance-based comparable data, we’ve been running in 1,000 different directions,” said Megan Starr, global head of impact at private equity firm Carlyle, speaking during the Bloomberg Sustainability Summit on 8 December.
“We have framework fatigue,” she added. “When I talk to our portfolio companies that want to start doing sustainability reporting at Carlyle. My recommendation sounds something like: start with the GRI [Global Reporting Initiative], then TCFD [Task Force on Climate-related Financial Disclosures], then SFDR [Sustainable Finance Disclosure Regulation].”
Starr’s comments come amid increased scrutiny on sustainability and environmental, social and governance issues in finance over the last few years, with heightened interest in the area following the COP26, the 2021 United Nations Climate Change Conference in Glasgow in November.
Recent forecasts predict that fund managers could see their ESG assets expand to over $30tn over the next eight years, expecting the surge in ESG investing during the pandemic to continue.
But there are also concerns over the verification of data reported.
“Carbon data disclosure has definitely increased over time…while that data has improved and increased over time, it isn’t audited,” said Alex Bernhardt, global head of sustainability research at BNP Paribas Asset Management, who was also speaking on the same panel.
“Typically it isn’t validated or standardised in any meaningful way,” he added, explaining that there is a “potentially important” role for regulation to play in this.
The International Financial Reporting Standards Foundation, which published a consultation in September to assess demand for global sustainability standards, announced in
November the creation of an International Sustainability Standards Board.
“If [the standards] are mandatory, then [companies] all need to do it, but before they are mandatory, there will be strong pressure from the markets,” said the chair of the IFRS Foundation Trustees, Erkki Liikanen, who also spoke during the virtual event.
Where’s the sense in excluding climate change data from a company’s accounts?
“Investors want to know more…so the market-driven process will be very strong. I hope that soon also they will be made mandatory.”