An industry-led Project has been launched with the publication of a standardised set of ESG metrics and a mechanism for comparative reporting.
A number of significant global LPs and GPs have got together to produce a standardised set of ESG metrics for use by the private equity industry when collecting information from their portfolio companies and reporting that information to investors – the Project's home page is here on the ILPA website (although the initiative is industry led, not ILPA-led: Carlyle and CalPERS in particular have been instrumental in its development).
The aim of the Project is to standardise and streamline the collection and reporting of ESG data to facilitate the creation of reliable and more transparent information on portfolio companies so that private equity investors can refer to comparable ESG data across their portfolios based on meaningful metrics. As the Executive Summary to the Project's overview document puts it, convergence is needed because, currently, "ESG data is a mess" and "the market is splintered".
So far there are 9 participating LPs and 7 participating GPs. Other LPs and GPs are invited to join.
At the outset, the Project is launching with a core set of six ESG metrics recognisable from other frameworks:
- Scopes 1 and 2 greenhouse gas emissions (with Scope 3 GHG emissions being optional)
- Renewable energy
- Board diversity
- Work-related injuries
- Net new hires
- Employee engagement
Further metrics may be added in future.
In addition to the six ESG metrics, company-level details (e.g., revenue, country of domicile, SASB's Sustainable Industry Classification System, company growth stage (i.e., venture, growth, buy out)) will be used to "normalise and segment the data".
For each of the six ESG metrics there is more detail on what must be collected and submitted in a short guidance handbook. This includes metrics, definitions, reportable units, links to further sources and guidance and references to related frameworks. The guidance also includes a glossary of common variables and a brief description of the data collection process and governance and guidance on data quality.
The website also includes a data reporting template and links to indicate interest or formally join the Project.
For the remainder of this 2021 calendar year, GPs will track and report on these six metrics for their underlying portfolio companies using a standardised format. The collected data will be shared directly with the investors/LPs but firms will also need to provide it to Boston Consulting Group (BCG) which will aggregate the data on an anonymised basis and produce a benchmark.
This is a very significant and welcome development which, if more GPs and LPs join the initiative, could lead to a more standardised approach to data collection and reporting across the private equity industry.
Two informational sessions on the Project are being held on 13 October (US/EMEA) and 14 October (EMEA/Asia).
If you would like further information on the Data Convergence Project specifically – or on ESG matters more generally – please speak to your usual Travers Smith contact or any of the individuals below.