Women in PE Forum: PE needs to converge around ESG data

GPs should drive the creation of consistent and comparable data disclosures and common standards in ESG, executives from Carlyle Group and Macquarie say.

Environmental, social and governance frameworks need to converge, according to panellists at Private Equity International’s Women in Private Equity Forum on Wednesday.

Speaking at the conference, Megan Starr, principal and head of impact at Carlyle Group, noted that the wide dispersion of approaches in reporting ESG data is setting back active and consistent adoption.

“We don’t need more frameworks in the ESG data space, we need a critical mass of companies reporting the same performance-based ESG data,” said Starr. “We’re moving towards a world where we have to converge … and we need to converge around the ones that will actually be helpful. We need to find real performance-based ESG data that shows trajectory and progress over time for material issues of a company.”

She added that GPs are key in this undertaking because of the amount of data they can gather from portfolio companies.

Consistency in reporting will enable LPs to distinguish and compare performance of businesses like for like and aggregate data for portfolios to communicate to their stakeholders, according to Mary Nicholson, global chief risk and sustainability officer at Macquarie Infrastructure and Real Assets, who also spoke on the panel.

“At the moment, the range of different frameworks and reporting makes it very difficult even to do something as simple as add up a carbon footprint across a portfolio,” Nicholson said. “If your GPs are providing it in a slightly different way, whether that’s 100 percent or proportional, what you with debt versus equity interest … it should be the simplest thing to tie up and even that is complicated,” she added.

The standardisation of ESG reporting has been an enduring issue for the PE industry and participants have long asked for a convergence of reporting templates and management tools.

In June, Guernsey Finance, a joint industry and government initiative, published a set of sustainable investing criteria for the private equity industry. The voluntary principles are detailed in the Guernsey Green Finance and UN Environment report titled Green private equity principles: a guide to best practice for GPs in a move toward standardisation.

The UN-supported Principles for Responsible Investment changed its reporting framework in 2018 to include indicators aligned with the Task Force on Climate-related Financial Disclosures, a global framework for reporting on climate in financial statements.

Private equity managers are the largest single group of asset managers among the more than 3,000 signatories of UN PRI, according to its website.