Private equity’s biggest players create ESG reporting standards

(Private Equity News) – The group, collectively representing more than $4tn in assets under management, has agreed on what it expects will become the first standardised set of ESG reporting metrics for the private equity industry.

A group of major private equity investors and managers has teamed up to try to fix how the industry measures and reports its environmental, social and governance performance.

The group, collectively representing more than $4tn in assets under management, has agreed on what it expects will become the first standardized set of ESG reporting metrics for the private equity industry.

The project aims to address the inconsistencies in how private equity firms report ESG performance, said Megan Starr, global head of impact at Carlyle Group, which co-led the project. Even small differences in how firms report data make it impossible for fund investors to compare different firms’ performance.

“As an industry we haven’t had a common language to measure ESG performance,” she said. “The field has been marching in different directions even though we all have the same objectives.”

As private equity firms and investors have emphasised ESG in recent years, the industry has faced challenges learning to measure and report the impact made by their investments. There have been several frameworks released to gauge that impact — including one released this year by the Institutional Limited Partners Association, a trade group for private-equity investors — but the reporting techniques across the industry have remained fractured, with no standardisation in how firms provide information to investors.

The initiative unveiled on 30 September, called the ESG Data Convergence Project, was co-led by Carlyle and the $479.22bn California Public Employees’ Retirement System. Other firms involved include Blackstone, CVC Capital Partners, EQT and Permira, while limited partners include AlpInvest Partners, CPP Investments and the Employees’ Retirement System of Rhode Island.

The fund managers agreed to standardise how they measure and report six ESG metrics, which will help investors compare the performance of different managers and how that changes over time. The institutional investors agreed to aggregate that data centrally to create the first set of ESG benchmarks for the private-equity industry.

The fund sponsors in the project agreed to standardise reporting for their portfolio companies beginning this year. The metrics they will report this way include greenhouse gas emissions, renewable energy, board diversity and work-related injuries, according to the release.

“The magic was we got a bunch of highly competitive general partners to agree to collect that data in the same format, using the same metrics, at the same time of the year, and report that to LPs,” Starr said.
She said she hopes the Data Convergence Project is a step toward standardisation and that it will eventually spread to more firms and investors, collecting and aggregating more types of data.

From WSJ Pro Private Equity