Private equity firms and investors launch 'ESG Data Convergence Project'
Some of the world’s largest private equity firms and investors have agreed on a first set of ESG metrics for private equity funds and underlying companies to report on. With the initiative, the launching partners, including APG, aim to increase the quality, availability and comparability of ESG data. Ultimately, this should promote sustainability in the private equity industry.
The 'ESG Data Convergence Project' is the first-ever collaboration between private equity funds and investors in these funds to standardize ESG metrics (ESG: environment, social & governance). Various major organizations are joining the initiative, which is led by CalPERS, the largest pension fund in the United States, and global private equity firm Carlyle. The founders, with total assets under management of over $ 4 trillion, call on other funds and investors to join. The more organizations report in a comparable way, the better the private equity industry can collect meaningful data and further sustainability.
A myriad of ESG standards
Until now, there was no generally accepted standard for the way in which private equity funds report on ESG. This makes it difficult for investors in private equity, such as APG, to assess and compare the various funds’ ESG performance. The aim of the ESG Data Convergence Project is to agree on a number of standard ESG metrics and to provide guidelines for technical measurement issues, such as how to determine investments’ carbon footprint. This gives investors such as APG a better insight into the investment risks and opportunities in their private equity investments.
The initiative starts with six metrics: greenhouse gas emissions (scopes 1 and 2), renewable energy, board diversity, work-related injuries, net new hires and employee engagement. More metrics will be added later. A third party will aggregate the data into an anonymized benchmark. Investors can use this to compare the ESG performance of private equity funds with the industry average.
“On behalf of clients, APG has long been driving ESG transparency in private equity as a way to secure accountability for responsible investment performance in the asset class,” says Peter Branner, APG’s Chief Investment Officer. ”Through this collaboration, we expect to push towards comparable ESG performance measurement and wider adoption of ESG as an integrated objective of private equity investments. APG will use the metrics in its engagement with managers. While APG's ambition goes beyond the six metrics identified by the ESG Data Convergence Project, we are excited by the momentum generated, with data collection by private equity managers already underway.“