During the height of the Covid-19 pandemic lockdowns, when travel stopped and time constraints shifted, CalPERS and Carlyle got a small group of GPs and LPs together on videoconference to discuss the ongoing challenges they were facing with ESG data.
Despite the proliferation of ESG frameworks and ratings providers, there was still no standardized, meaningful, and performance-based data from private companies. The effect has been paralytic:
- LPs and investment managers have not been able to see standardized, comparable ESG data across their portfolios.
- GPs have struggled with a mounting volume of bespoke ESG data requests, and have been unable to know if they are making meaningful progress on the ESG topics that really matter.
- Portfolio companies have had to navigate an increasingly complex set of ESG frameworks.
- Broad-based data about ESG performance in the private investment markets has been nonexistent.
For ESG executives across the industry, this was deeply frustrating. How could they put so much time and effort into ESG topics, but still not understand whether progress was being made? There had to be a way to drive convergence around a standardized set of ESG metrics and a mechanism for comparative reporting to benefit all stakeholders in the private markets.
The group’s conversation advanced from sharing concerns to developing a plan of action. The GPs and LPs that would become the founding members of the Initiative* spent many hours on videoconferences together as they brainstormed ideas for an ESG initiative designed specifically to meet the needs of private equity firms and their investors.
They agreed that it needed to be simple enough that the system could be enacted quickly, broad enough that it could be applicable across all of private equity, and substantial enough to provide meaningful data. The metrics would need to be consistent enough to quickly establish benchmarks but flexible enough to allow room for continuous improvement.
In September 2021, the founding members led by CalPERS and Carlyle, who became the inaugural Co-Chairs, announced the launch of the initiative. The EDCI has since experienced tremendous growth, with more than 375 GPs and LPs now part of the initiative.
Based on input from its members through working groups, the initiative has evolved significantly since its founding, with membership options now available for Private Credit firms, Investment Consultants, and ESG Data Platforms, and a new net zero metric being added for 2024. Going forward, the EDCI will continue to serve the private equity industry, supporting its stakeholders on their ESG journey.
The partnership is open to any eligible members that wish to join and agree to support the principles of the work. We hope you’ll join us in the EDCI’s mission of generating meaningful, performance-based, and comparable ESG data for the private equity industry!
EDCI Steering Committee
The ESG Data Convergence Initiative was created by the industry, for the industry. The EDCI Steering Committee, composed of 8 LPs and 8 GPs, makes strategic decision about the initiative and is led by two Co-Chairs (one GP and one LP: currently Carlyle and CPP Investments). Historically, the Steering Committee was comprised of the founding GPs and LPs that were part of the initial work to launch the initiative.
Membership on the Steering Committee will rotate to bring in perspectives from the broader participating group of LPs and GPs. Beyond the Steering Committee, all members have opportunities to be actively involved, for example by serving on working groups or providing feedback (e.g., on EDCI metric selection via a survey).
The Steering Committee conducts annual sprints to review the initiative’s progress, and our process, organization, and scope. This includes a retrospective of the initiative’s annual cycle of data collection, and consideration of proposed changes to the initiative for the following year (e.g., refinements to the EDCI metrics).
ILPA: Steering Committee Secretariat
ILPA serves as official Secretariat to the EDCI Steering Committee and facilitates the annual EDCI Steering Committee sprint meetings. ILPA also supports Steering Committee governance and elections.
ILPA is continually working to align LPs and GPs around important ESG issues and provides education, resources, and toolkits for private equity investors looking to integrate ESG considerations into investment programs. For more information, visit ILPA’s ESG resources page.
BCG: Initiative Administration
Boston Consulting Group administers the EDCI with responsibilities including advising the Steering Committee, supporting the EDCI membership base, and creating the annual benchmark.
BCG has supported the EDCI on a pro-bono basis since the initiative’s inception in 2021 and has been appointed by the Steering Committee to continue in this role for a three year term. In this role, BCG supports the EDCI in two primary ways:
- Serving as the third-party aggregator of anonymized data through BCG Expand, a fully owned subsidiary that specializes in benchmarking, in order to create a robust benchmark, derive research insights, and support any external publications as governed by Steering Committee approval.
- Advising the Steering Committee through its annual sprint process reviewing the initiative’s progress (including gathering and structuring participant feedback on EDCI metrics).
In its formalized role, BCG (in close collaboration with the Steering Committee) has developed a document that provides an overview of how it will support the EDCI going forward. The document provides more information on how BCG will protect sensitive member data, use that data to develop the annual EDCI benchmark and then follow the SteerCo’s guidance on how that benchmark can be used. Read the full text of the document here.
From its inception, the EDCI has been made possible by many hundreds of people doing additional work off the sides of their desks, alongside the full time pro bono support provided by BCG. To ensure the Initiative is well positioned to sustain its current momentum, the Steering Committee has spent considerable time working with BCG to develop a plan to build financial sustainability for the EDCI over time, so it is not perpetually reliant on ongoing pro bono contributions.
Firstly, all Private Equity GPs and LPs will be able to continue to participate in the EDCI free of charge, and in doing so access the high-quality benchmark offering available to participants in the inaugural year (i.e. 2022). Starting in the summer of 2024, PE GPs and LPs will also be able to choose to become premium EDCI members and gain access to additional benchmarking functionality (click here for more details on these functionalities). The fee to upgrade will vary by fund AUM (to ensure these functionalities are accessible to all funds, regardless of size) and has been carefully designed to target covering initiative-related costs (not generating profit).
In addition to PE GPs and LPs, other entities that are now eligible to join the initiative (private credit funds, data platforms, & investment consultants can learn more on their membership pages) will be able to become EDCI members by making a contribution to the initiative’s financial sustainability. The Steering Committee’s goal is to ensure the EDCI can effectively support the private markets for years to come. Click here to read more about the EDCI’s path forward towards financial sustainability.