G for granularity

by Silvia Saccardi 26 January 2023

A report released by KEY ESG has revealed that more granular data needs to be collected in order to successfully report on ESG impact to LPs.

The report stresses the importance of an industry-wide integration of ESG, led by granular data which is to be collected at every stage of the investment lifecycle. Having greater visibility on areas of improvement will help to give that competitive advantage over other industries.

This suggestion comes amid the report’s finding that 80% of fund managers have found challenges around extensive ESG questionnaires, despite three quarters of private equity funds (75%) being obligated to report on ESG to LPs.

There also remains considerable confusion within portfolio companies, as 90% of those surveyed for the study said they were uncertain about how to correctly report ESG data.

Heleen van Poecke, CEO of KEY ESG, commented: “What this research has highlighted is that the private market space has significant hurdles to navigate to successfully drive ESG. But it also indicates the relatively untapped potential of the significant impact private equity ownership can have once GPs know what to report on and start collecting granular data to manage towards improvement. Doing this, GPs will not only be better placed to meet ESG regulations and framework requirements as they evolve, but will also understand their portfolio companies better, improve their investment processes and their ability to raise funds, as well as to make better investment decisions.”

To combat the different data requests from LPs, regulators, banks and other stakeholders, Poecke further advised: “GPs should be proactive about setting their ESG policies and agenda, and bring their LPs along so that they can standardise the data they collect and report on. The Limited Partner Advisory Committee can be a good forum for this.”

Poecke also suggested that ESG ‘literacy’ needs to be improved within portfolio companies as they tend to be less familiar with the requirements. This makes filling in the spreadsheets sent to them by GPs to collect the data more difficult.

Other areas for improvement include the time it takes for firms to collect ESG data, with the report stating it can sometimes take up to 12 weeks. As the first regulatory reporting deadline for portfolio companies to provide ESG data is less than six months away, the process needs to be streamlined and more efficient in providing the most relevant datasets.

The report reveals the findings of a survey of more than 100 industry participants, the majority of which were UK- and EU-based, plus some in the US. It included GPs and portfolio companies, with a focus on mid-market players.

KEY ESG is a software provider that aims to help fund managers manage and report ESG performance by streamlining processes and automating reporting on its cloud-based platform.

Click here to read the full report.

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