Avoiding Pitfalls in Private Equity ESG Reporting
Increased transparency is at the heart of the ESG requirement for fund managers.
16 July 2021
Unlike listed companies, private equity (PE) firms don't report publicly on non-financial issues. However, that stance is changing as demand for non-financial reporting is rising from stakeholders. In their due diligence and overall monitoring of their fund managers, more and more limited partners (LPs) are asking for general partners (GPs) to disclose around a wide range of benchmarks such as gender and diversity, promotion rates, climate change and board-level responsibility at the private equity firm and their portfolio companies.
To shed light on these new reporting demands on corporate behavior, SS&C Intralinks recently sponsored a webinar for investor-relations professionals, "Reporting ESG: Challenges and Opportunities for Private Equity GPs." The panel discussed key considerations for fund managers looking to improve transparency and avoid reporting pitfalls at the ESG-level. Here are four recommendations that were shared:
- Start sharing information with LPs during due diligence/fundraising: Providing transparency around these issues is critical, especially in this competitive fundraising market. GPs that can clearly articulate their strategy to LPs will give them a differentiator.
- If you have an ESG policy, make sure you can back it up with evidence: It is important to note that some investors are requesting transparency throughout the life of a fund, not just during fundraising: You are going to need to be able to demonstrate your ability to execute commitments made at fundraising regarding ESG policies.
- Be upfront about your performance: Private equity is still learning how to be more socially conscious, and this is true for every firm across every industry. That is no surprise to LPs. It is better to discuss your performance with LPs, even if it is negative, rather than hiding it. LPs are not expecting perfection, just improvement. The key is having a plan in place that shows how you are going to incorporate ESG into your investment analysis and drive change within the portfolio companies over time.
- Start with an ESG framework that works for you and evolve from there: There is no widely used standard for ESG reporting today and most GPs are still figuring out what their reporting looks like. You can use the available reporting frameworks that are out there — the United Nations-backed Principles for Responsible Investment (PRI) incorporates metrics from the Sustainability Accounting Standards Board (SASB) — as a starting point and then evolve your strategy from there. SS&C Intralinks recently introduced a tool to share ESG metrics directly in our InvestorVision reporting portal which also includes LPs with granular data across an LP’s portfolio in a single view.
My takeaway from our panel discussion is that transparency is at the heart of the ESG reporting requirements. If managers want to remain competitive in both the short-term and the long run, they need to continue to develop their strategy around ESG reporting.
You can watch the full webinar recording on-demand here.
As Director of Strategy and Product Marketing for Intralinks, Meghan McAlpine is responsible for the go-to-market strategy and driving the growth of the company’s Alternative Investments solution, the leading communication platform for private equity and hedge fund managers and investors.
Prior to joining Intralinks, Meghan worked in the Private Fund Group at Credit Suisse. While at Credit Suisse, she raised capital from institutional and high net worth investors for domestic and international private equity firms.