Limited partners continue to express frustration with standardized data metrics and are moving forward on several initiatives to fix the issue. Most recently, the consortium including the California Public Employees’ Retirement System and Carlyle Group reached a new milestone in their data reporting project, bringing in investors managing $8.7 billion. The effort would allow participants to report key metrics to a consultancy which then sorts the data to derive a figurative scorecard against which LPs can judge portfolio company progress toward ESG goals.
That represents rapid growth for the consortium. Just in September, their ranks included limited and general partners managed less than half that sum.
General partners yet to participate in this or another effort (there are many) may be asking why compliance is so critical, so let’s do a deep dive on LP pain points. Picture a portfolio allocated amongst several funds. Each manager might use a different template to track ESG goals, reporting tons of carbons sequestered, gigawatt hours saved, or any number of metrics to highlight an energy-saving focus. Even then, the chosen figures may be shaped by the GP’s stage in the fundraising cycle. Given the difficulty of valuing public companies pre-sale, the gray area can leave discerning LPs thoroughly underwhelmed, an LP tells me.
Portfolios heavy on middle-market companies face their own challenges. As Peter Dunbar, a senior specialist at United Nations’ Principles for Responsible Investing previously told me: “Most of these companies just don’t have that data; it’s not an issue of tech.”
–Brandon Zero
