ESG frameworks are starting to proliferate, but it remains unclear whether a single standard will help GPs grapple with the deluge of requests from LPs for uniform data. Into the gap between extant data sets and investor expectations, the United Nations’ Principles for Responsible Investing is moving to find a common denominator.
The challenge is multifaceted, but so are the potential rewards.
“The bulk of the companies that PE invest in are in the middle market,” says Peter Dunbar, senior specialist, PRI. “Most of these companies just don’t have that data; it’s not an issue of tech.”
“It’s not just that they don’t have expertise, but also the resources,” Carmen Nuzzo, head of fixed income, investment practices, PRI. “Sometimes they might have the data but haven’t thought it’s as important as it’s beginning to be now. It’s a combination of all these things.”
That means a comprehensive contribution to the race for an authoritative ESG data framework has to simplify the data reporting process for companies and GPs. Currently circulating frameworks can provide starting points—what key performance indicators are already being asked for? Which of these are the most practical for smaller scale companies to supply?
“By creating this alignment, we can make the life of target companies easier,” Nuzzo explains. Firms can “report once and make it easier. Each reporting framework makes its approach from a different angle, so for the companies this is becoming a real burden.”
Mergers & Acquisitions will take a more comprehensive look at PRI’s novel ESG-related due diligence template, being rolled out to a pilot group of investors now, in our January issue. In the meantime, come to our upcoming PE Innovators in ESG SPEAK event to get the authoritative take on best practices and read our recently launched 2021 Private Equity Innovators in ESG as a primer. And if you’re a private equity investor working on ESG, I’d love to hear from you at [email protected].
–Brandon Zero
