Responsible Investment Forum: The call for data standardisation gets louder

Industry-wide ESG data standards are the key challenge facing sustainability in private equity markets, asset managers said at PEI's virtual conference last week.

Private fund managers are actively pushing for common ESG data standards in a bid to head off incidences of ‘green-washing’, delegates at the PEI Responsible Investment Forum heard on Thursday last week.

While many firms are aligning their investment activity to the UN’s Sustainable Development Goals, these do not help solve one of the biggest challenges in ESG today.

“The SDGs don’t really show what impact is created by a manager or fund,” said an impact investing executive, who can’t be named because the discussion was under Chatham House rule. “A lot of people are using them because they’re easy to identify, but you need something to measure, and that’s with outputs.”

Investors have been calling for some time now for standardised, quantitative ESG data from managers.

An executive at another management firm described the “alphabet soup of different frameworks and standards” used by different investors, managers and policymakers to measure ESG impacts, but said that the foundational system for most of these was the UN’s 2015 SDGs. This panellist said their firm implemented a bespoke framework tailored to the firm’s investment strategies and values but found the UN SDGs useful as a way to show their sustainability achievements to stakeholders.

There was a universal call among the panellists for standardisation of ESG data frameworks.

“We prefer an industry-wide methodology versus something that asset manager A versus asset manager B comes up with, because there’s always going to be bias in that. We’re all much better off, which allows investors and underlying clients to make better decisions and compare different strategies,” said Julia Wittlin, managing director at BlackRock Private Equity Partners.

“A standardised methodology would also help avoid greenwashing, which I think is a huge issue in the industry,” said Wittlin, referring to the risk of managers badging themselves as “sustainable” or “impact” without living up to the label.

Panellists agreed that the way forward involves combining a standardised data approach with additional bespoke metrics. “We’ve had clients and stakeholders say they are actually focused more specifically on certain outcomes or certain SDGs or driving in very specific areas positive social contribution aligned to the SDGs. And in those places, we’re actually really trying to use [standardised] methodologies,” said Wittlin.