Author: ESGTree

As the push for sustainability reporting accelerates, private market investors face a growing conundrum: how can they efficiently and accurately collect sustainability data from portfolio companies (PortCos) while keeping up with the evolving Environment, Social, and Governance (ESG) standards? Without a streamlined process, General Partners (GPs) risk drowning in a sea of incomplete or misaligned data that fails to meet regulatory and investor expectations.

Financed emissions account for 700 times more than a financial institution’s directly generated emissions (Carbon Disclosure Project’s (CDP) Time to Green Finance report)

As the push for sustainability reporting accelerates, private market investors face a growing conundrum: how can they efficiently and accurately collect sustainability data from portfolio companies (PortCos) while keeping up with the evolving Environment, Social, and Governance (ESG) standards? Without a streamlined process, General Partners (GPs) risk drowning in a sea of incomplete or misaligned data that fails to meet regulatory and investor expectations.

As the push for sustainability reporting accelerates, private market investors face a growing conundrum: how can they efficiently and accurately collect sustainability data from portfolio companies (PortCos) while keeping up with the evolving Environment, Social, and Governance (ESG) standards? Without a streamlined process, General Partners (GPs) risk drowning in a sea of incomplete or misaligned data that fails to meet regulatory and investor expectations.

Discover how investment firms can prepare for IFRS S1 and S2 reporting, the new sustainability standards from the ISSB. Learn about key challenges, mitigation strategies, and how early adoption can improve ESG reporting, lower costs, and enhance valuation.

Explore how General Partners (GPs) in mid-market Private Equity (PE) firms can operationalize ESG integration by investing in ESG resources. Part 4 of our Critical Success Factors Series outlines the importance of building internal ESG capacity and utilizing technology for efficient sustainability data collection and reporting. Discover the best practices for selecting ESG reporting platforms to meet investor and regulatory demands.

The Private Equity (PE) market has seen greater adoption of Environment, Social, & Governance (ESG) in the past four years than ever before. Factors such as changing investor priorities and rising pressure from regulators have fueled this shift and, while the tide has not unilaterally turned, sustainability is no longer a fringe concern. In this article for GPs, we address the two major ESG pain points experienced by Mid-Market PE firms, namely: Choosing which ESG metrics to prioritize and report at all levels, and how to collect complete, consistent, and reliable ESG data
We’ve also embedded an interactive decision-tree tool to help GPs determine which regulations and standards to consider, given their firm’s and portfolio companies’(PortCos)’ geographies and investor data requests.

Discover how a robust ESG integration strategy can help General Partners (GPs) stay competitive by meeting Limited Partner Due Diligence Questionnaire (DDQ) requirements and regulatory demands. This article outlines essential steps for building an effective ESG policy, assessing materiality, and choosing relevant metrics to enhance risk management and value creation in private equity
Building a Robust ESG Integration Strategy & ESG Policy
What Can You Do?
Step 1. Have a Stakeholder-Led ESG Policy Development Process
Step 2. Choose the Right Metrics & Sustainability Frameworks via PE Materiality Considerations

The Private Equity (PE) Market has seen greater adoption for Environment, Social, & Governance (ESG) in these past 4 years than ever before. Today, PE firms are highly motivated to integrate ESG considerations at the firm & portfolio company (PortCo) levels, primarily because of:

Factor 1: Investor (LP) Priorities – ESG Reporting & ESG Integration:
What the Market has Shown Us:
GPs globally are reporting a rise in Limited Partner (LP) requests for ESG data in Due Diligence Questionnaires (DDQs) as it provides crucial insight into how a company is responding to emerging societal and climate risks.
According to a report from the Principles for Responsible Investment (PRI), over 80% of Private Equity Investors (i.e. LPs) now consider ESG factors central to their investment decisions; in 2021 alone, half of the total fundraising flowed into firms with formal ESG policies, underscoring its growing importance in private markets. In fact, our experience with PE clients has confirmed that LPs are now applying sophisticated scoring mechanisms to score current & potential fund manager’s performance on ESG, further influencing future fundraising allocations.
GPs are now seeing entire acquisitions fall through because the PortCo that they were exiting from did not have an ESG Policy at par with market standards. The fact that more than 70% of mergers and acquisitions (M&A) leaders (Deloitte) and 93% of LPs (Bain) report withdrawing from potential acquisition deals over ESG and sustainability concerns, further substantiates this.
In some cases, LPs are even placing ESG data collection conditions on their investment commitments, leaving GPs with no choice but to comply. Our PE clients are sharing that a frequent LP requirement during fundraising is the commitment for portfolio level ESG data collection by the GP.
According to a PwC Survey, LPs are willing to absorb between 5% and 9% in management fees if there are quality improvements in their GPs’ ESG data reporting practices. ‘Quality improvements’ encompass: 1) improvements in a PE firms’ and its PortCos’ data coverage & data accuracy, 2) access to trends & visualizations for analysis at both the firm and PortCo levels, and 3) benchmarked ESG data to evaluate performance against a set sustainability metrics relative to peers.