Cority attended the recent Responsible Investment Forum (RIF) in London. Co-hosted with PRI, the Responsible Investment Forum is the longest-running private equity (PE) event focused on bringing together fund managers, institutional investors, and expert advisors to discuss ESG issues across alternative asset classes. Below we identify four key ESG takeaways from Responsible Investment Forum Europe.
1. Value Creation Is the Leading Driver for ESG
ESG continues to be high on the agenda for PE markets. Many general partners (GPs) are increasingly subject to higher scrutiny and regulatory compliance in an ever-evolving landscape. There is now much more emphasis on creating value through ESG performance, and a step away from the notion of ‘not doing harm’.
PE firms are uniquely placed to realize ESG opportunities as a key value creation driver. However, the journey can be challenging and complex. The multiplicity of ESG frameworks, and obtaining reliable data to track performance, remain a challenge. However, as the industry matures, tools are being developed and ‘preferred’ frameworks are being adopted to align expectations.
GPs can protect and create long-term value by enhancing value levers and integrating ESG into their value creation plans. Measuring performance against targets and building the knowledge and technology to support and improve those KPIs are key to the success, and sustaining asset value.
2. Decarbonization Strategy – Setting a Clear Road Map and Targets
A growing number of firms are developing decarbonization strategies and many have set net-zero commitments and science-based targets across their portfolio. For these firms, defining a decarbonization strategy is the most important starting point. Such a strategy typically involves setting out the overarching ambition and articulating carbon reduction targets, which we can break down into short- and long-term measures. It is critical to align these targets with the firm’s overall ESG and fund strategy, serving as a guide for limited partners (LPS) and the investment team.
However, setting realistic and achievable targets requires accurate measurement of primary data. This requires a streamlined approach to data collection and analysis, as well as portfolio engagement and education. PE firms need to truly engage with their portfolio companies’ management teams and set a clear roadmap. With active engagement at portfolio level, LPs can ensure that these portfolio companies feel part of their investor’s decarbonization journey and understand what is expected of them year-on-year.
3. Value of Real Data
Accurate and reliable ESG data is crucial to ensuring firms achieve their targets and create value. This relates to decarbonization and the need for accurate emissions data. It is also true for the entire ESG spectrum. Primary data, sourced directly from portfolio companies, is how reliable value creation can be achieved. Anything else: secondary, or tertiary publicly available data, won’t stand up to scrutiny when it comes to monitoring the progress of targets and performance over time.
To report robust and relevant data, LPs need to consider implementing a data strategy that future-proofs their reporting objectives. Embedding a data strategy will enable organizations to define a clear path for data management, facilitate reporting resilience, engage stakeholders, embrace technology and balance short- and long-term reporting effectively.
As with any data request, it is essential to communicate the requirements clearly but also expand on the when, how and why. Portfolio companies will look to investors for guidance on requirements today, but they also need to understand the context of the broader journey. For many privately held companies, they may not have been required to report on environmental or carbon data previously and as such, an educational element to their engagement is important.
4. Progress over Perfection
A challenge within the PE industry is the concept of letting perfection get in the way of progress. Stakeholders need to understand that they can’t achieve perfection overnight.
ESG data is a great starting point and it’s important to have a baseline in order to monitor progress. However, we’re already seeing signs of ‘green hushing’. This is when companies choose to keep their efforts quiet for fear of being accused of greenwashing. There is a place for blatant greenwashing being exposed. However, we all need to do more to encourage companies to do their best to improve.
ESG and sustainability reporting is a journey and the key to success is measurement of progress and stakeholder buy-in. CEOs and Boards need to genuinely commit to the goals. They also need to be educated and informed at every step of the way.
Cority and ESG Data Collection for Private Equity
ESG software is the obvious way to streamline the ESG data collection, questionnaire distribution and management process. Investors are looking for purpose-built ESG software platforms to collect, track and analyze data and material ESG KPIs from their portfolios on an ongoing basis.
Cority has been providing sustainability and ESG software solutions for 15+ years. Through its award-winning Investor ESG Management software solution, focused on the collection, management and analysis of ESG and carbon data across an investment portfolio, Cority is enabling global PE firms to measure the ESG and carbon impact of their portfolios.
Cority ‘s Investor ESG Management software solution is a purpose-built responsible investing solution. It provides centralized analysis of ESG data at portfolio, fund and portfolio company level. Investor ESG Management software solution enables location-based GHG emissions calculation, customized scoring and ratings and portfolio engagement. It also enables you in simplifying the collection, management and analysis of standard and proprietary ESG data and documents.
