Defined Benefit
Insurance Assets

Initiative Aims to Standardize ESG Reporting for Private Equity Investors

Initiative Aims to Standardize ESG Reporting for Private Equity Investors
2 min 18 sec

More than 100 private equity investors, managers, and advisers have joined together in efforts to improve environmental, social, and governance (ESG) data collection for private companies. Initially backed by CalPERS, the $500 billion state pension plan, and the Carlyle Group, a publicly traded global private assets investor, the Data Convergence Project asks participants to adhere to a standard set of ESG data points provided for portfolio companies owned by participating private equity managers.

The reported metrics include a breadth of ESG-related topics, ranging from carbon emissions to workforce turnover. The metrics will be anonymized and aggregated by a third-party firm annually, and then released in the form of a benchmark to participating limited partners (LPs) and general partners (GPs).

Background on the Data Convergence Project

Responsible investing encompasses a wide range of topics, and institutional investors often have varying preferences on which areas to focus on. Private equity GPs have found themselves struggling with a large number of customized ESG-related data requests from their LPs, and limited partners have found it difficult to interpret the ESG data provided without a reference point or any means of comparability against industry peers.

To resolve these issues, a cohort of large private equity investors and general partners started a conversation to improve the consistency and usefulness of ESG data collection for private companies. This dialogue led to the formation of the Data Convergence Project, which has 41 LPs and 85 GPs participating today.

For the inaugural reporting cycle, participating general partners will provide portfolio company metrics to their limited partners that fall under six ESG-related categories:

  1. GHG emissions
  2. Renewable energy consumption
  3. Diversity of board members
  4. Work-related injuries
  5. Net new hires
  6. Employee engagement

Bottom Line

While both public and private companies have historically suffered from a lack of consistent ESG reporting and disclosures, the private markets especially have been slow to incorporate ESG reporting as a result of limited regulation, conflicting reporting frameworks, and the inherently “private” nature of private companies. Though still in nascent stages, the Data Convergence Project represents a new and important development for comparing ESG performance in the private equity industry. Limited partners that consider ESG performance when making investment decisions should benefit from better consistency and comparability associated with this initiative.

The success of the project may ultimately depend on the level of adoption from GPs, as participation is voluntary. And any insights gathered about ESG performance would likely be most reflective of larger, better-resourced private equity firms that are well-equipped to implement this level of reporting. But as the project develops, there is potential to expand the number of data points used in the benchmark, and create similar benchmarks for other private asset classes such as real estate.

More information about the Data Convergence Project and how to get involved is available on the Institutional Limited Partners Association’s website.

Posted by

Share on facebook
Share on twitter
Share on linkedin
Related Posts

A Deeper Look at How We Did With Our Capital Markets Assumptions

Julia Moriarty
An analysis of how Callan's Capital Markets Assumptions performed over time by asset class.
Private Markets

Significant Drops in Private Equity Activity From Peak Years of 2021-22

Ashley Kahn
Callan expert analyzes private equity activity in 1Q24, from fundraising to exits.
Private Markets

Sector-Specialist Strategies: What Institutional Investors Need to Know

Chrissy Mehnert
A look at sector-specialist strategies and how institutional investors can analyze them.

SEC Releases Final Climate Disclosure Rules

Kristin Bradbury
An explanation of the final SEC climate disclosure rules and what they mean for institutional investors.
Private Markets

Private Equity Sees a Big Slowdown After Frenzy of 2021

Ashley Kahn
An update on private equity performance in 4Q23 and for the year.
Private Markets

Private Equity Investors Focus on Exits as Activity Drops

Alternatives Consulting Group
The Alternatives Consulting Group provides an update on private equity performance in 3Q23.

The Heat Is On! Carbon-Footprinting Basics for Institutional Investors

Amit Bansal
Amit Bansal explains what carbon-footprinting means for institutional investors.

Callan Study Examines ESG Practices by Investment Managers

Kristin Bradbury
Kristin Bradbury summarizes our 2023 Asset Manager ESG Study.

What Investors Need to Know About the SEC’s 2023 Private Funds Rules

Alternatives Consulting Group
The Alternatives Consulting Group analyzes the new SEC rules on unregistered private funds.

S&P Global Moves Away from Numeric ESG Credit Indicators

Kristin Bradbury
Kristin Bradbury explains why S&P Global dropped its numeric credit indicators and what it means.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.