If getting standardized data is the chief obstacle reaching to uniform environmental, social, and governance goals, private equity’s willingness to push for metrics should turn talk into action. A key question, though, is when? “Standardization continues to be the biggest barrier for fund managers to adopt ESG standards,” Peter Cogan, managing director at accounting firm EisnerAmper, told Mergers & Acquisitions in an interview. “I think it’s a change, but it’s an achievable barrier; the last two years have been hard being in lockdown while trying to find solutions for this.”
Turning a corner will be key to private equity. Respondents to an EisnerAmper survey saw private equity as the asset class most ready for ESG investment in the next three years. However, implementing ESG remains a challenge, chiefly due to a lack of standardized reporting and data sets, according to a plurality of 100-plus financial services executives surveyed. Some firms are already taking action, drafting and implementing policies of their own. But they may take time to bear fruit.
“I think we’ll see lot more adoption. At one point, EisnerAmper was talking to several managers a week focused on this from the VC and fund-of-funds sides,” Cogan says, and concrete, standardized data are well within reach. “There are so many ways to value a portfolio, but here, if you’re hiring minorities, how many? If you have a carbon footprint, what is it?”
That ESG metrics are quantifiable is one major tailwind for widespread adoption; efforts of industry associations like the Institutional Limited Partner Association are yet another. The organization’s ESG assessment framework provides LPs with milestones to evaluate their own data collection and progress monitoring efforts. The hope is that investors will drive change across private equity and the industries that serve it.
“In the next two to three years, I predict accounting firms looking different in regards to ESG and the reporting we do for our alternative investment clients,” Cogan says.
Editor’s Note: Mergers & Acquisitions will be honoring PE Leaders in Diversity Equity & Inclusion, our inaugural list, in the September issue of the magazine and at our virtual event, M&A’s Leaders in DEI Speak, on Sept. 22.