Overview

Why was the ESG Data Convergence Initiative created? Aren’t there already too many ESG frameworks and ratings providers? Is this just another framework?

The ESG Data Convergence Initiative is not a new framework. The two main objectives of this initiative are to 1) catalyze convergence toward consistent reporting on material ESG metrics, leveraging previously existing and thoughtful frameworks as a guide for determining which metrics to report on, and 2) create a collaborative mechanism to improve this process every year.

Many ESG reporting frameworks have emerged, each with various areas of focus or oriented toward specific stakeholder groups. However, there has historically been a lack of convergence on an initial core set of ESG metrics for private companies. Until the ESG Data Convergence Initiative launched, LPs, GPs, and underlying portfolio companies reported using different frameworks, resulting in a lack of usable data in any single set of ESG metrics across private companies.

Aligning on a core, standardized set of metrics and a mechanism for comparative reporting allows GPs and portfolio companies to benchmark their current position and generate progress toward ESG improvements, while also enabling greater transparency and more comparable portfolio information for LPs.

What is the future of the ESG Data Convergence Initiative?

We expect the initiative to evolve over time with input from our members. For example, after the inaugural year a number of changes have been made to the Metrics Guidance based on member feedback (such as helping to standardize the definition of workplace accidents across geographies). We also anticipate that the number of metrics collected by the initiative will grow over time, but in a gradual nature to ensure the ability to collect data is feasible for general partners and their underlying portfolio companies. For more information visit: Our Goal

What has the initiative learned about ESG in private equity from the inaugural year?

BCG has worked closely with the EDCI Steering Committee to review what the inaugural year’s EDCI benchmark reveals about ESG in private equity. While the majority of these insights will remain within the EDCI community of GPs and LPs, the Steering Committee has approved the public sharing of some limited, high level insights to help the EDCI shape the future of the private equity industry’s approach to ESG (in line with the EDCI’s mission).

We are therefore pleased to be able to share BCG’s thought leadership article, New Data Shows How Private Equity Stacks Up on ESG. The article celebrates the progress that the initiative has made in its inaugural year and highlights a few of the key findings from the benchmark.

Governance

Who runs the ESG Data Convergence Initiative?

The EDCI is run by its participating GP and LP members. The EDCI Steering Committee, composed of 8 LPs and 8 GPs, is the governance body responsible for the initiative and is led by two Co-Chairs (one GP and one LP: currently Carlyle and CPP Investments).  For more details see the section on: Governance

How can I join an EDCI working group?

Any EDCI member can participate in working groups, which operate in the spring of each year (ahead of the Steering Committee sprint). In the inaugural year of the EDCI, working groups looked at external engagement, technology platform, operating model and private credit topics.

Membership

Who can participate?

Membership is open to all GPs and LPs in the private equity industry. Investment managers with asset allocation responsibilities can also formally commit to the Initiative.

As of October 2022, Investment Consultants who advise EDCI-member LPs can also now formally commit to the EDCI. See the Membership page for access conditions and more info.

What are the benefits of participation?

For GPs, the Initiative:

  • Creates stronger, clearer portfolio company accountability
  • Leads to greater understanding of ESG performance compared to peers
  • Focuses efforts on more targeted ESG improvements
  • Adds an additional analytical lens to direct future investments
  • Differentiates from other GPs
  • Simplifies investor reporting, enabling more resources to focus on implementing ESG improvements

For LPs, the Initiative:

  • Leads to stronger, clearer GP accountability
  • Increases transparency into underlying holdings and improves understanding of ESG performance across the entire portfolio
  • Improves understanding of the relative performance of GPs on ESG, especially over time
  • Adds an additional analytical lens to direct future investments
  • Enables more comprehensive ESG reporting to support broader ESG goals

For portfolio companies, the Initiative:

  • Enables a clearer understanding of relative performance and stakeholder areas of focus
  • Identifies targeted areas for improvement
  • Enables, potentially, a cheaper cost of capital (such as through ESG-linked financing)
  • Potentially enhances valuations for companies seen as market leaders on ESG dimensions
  • Prepares companies for more comprehensive ESG reporting
  • Positions companies to meet public market expectations ahead of potential public market listing
What are GPs and LPs committing to when joining the ESG Data Convergence Initiative?

GPs will:

  • Determine which funds/strategies to initially include in the initiative
  • Ensure internal collection systems for participating funds/strategies track the initial core set of ESG metrics using the standardized definitions and technical protocols
  • Abide by the Metrics Guidance to the extent possible, and explain instances of deviation if needed
  • Supply the metrics to LPs invested in a given strategy, as requested, preferably using the standard template
  • Provide, by April 30 of each year, the required ESG metrics and a series of normalization metrics for previous calendar years, anonymized by company, to a third-party aggregator

LPs will:

  • Ensure current ESG data requests to GPs to align with the required ESG metrics of the initiative (or eliminate those requests and collect through the standard template), when relevant/overlapping requests exist
  • Continue to converge ESG reporting requests to encourage more comparable ESG data, where appropriate
  • Publicly support the effort and encourage underlying GPs to report via the agreed ESG metrics
Is there a cost for LPs or GPs to participate?

There is currently no cost for LPs or GPs to participate.

Should GPs that can only collect some of the metrics still participate?

We selected fewer metrics, as we wanted to prioritize feasibility of collection, so we strongly encourage GPs to collect the maximum number of metrics possible. While a complete data set is most helpful, a high-quality incomplete data set may still be useful to the initiative and for participating LPs. Please reach out to info@esgdc.org if you would like to discuss participation in the absence of a complete, high-quality data set. Please note that GPs will only have access to the benchmark of metrics that they have been able to submit.

Do we have to join ILPA to participate?

No, the EDCI is open to any institutional investors that agree to support the principles of the work.

Are members able to participate in other ESG-related initiatives?

Absolutely. This effort is designed to be complementary with the broader industry work on ESG data and it is not intended to supplant or be at odds with other efforts. This initiative aspires to be part of the industry’s effort to converge around clear expectations and to drive towards greater ESG integration for LPs and GPs.

Data Security

How does the EDCI ensure data privacy and security?

Data security and privacy are of utmost importance to the EDCI, and to BCG’s support of the Initiative – as a leading professional services firm, BCG’s business model fundamentally depends on client trust and data security. BCG is utilizing best-in-class protocols to protect GP and portfolio company data with several layers of security, outlined in the sections below.

How is the data protected when submitted and stored?

BCG Expand, a benchmarking platform for financial services companies and wholly-owned subsidiary of BCG,  currently serves as data aggregator to the EDCI. In its role as data aggregator, BCG Expand has implemented measures to ensure data privacy and security, utilizing the same features and practices that BCG Expand puts in place for its benchmarking of other sensitive metrics for the broader financial services industry. The EDCI data environment undergoes regular vulnerability scanning and periodic penetration testing, and BCG Expand complies with all applicable data protection laws and regulations.

Data submissions are made using a fully encrypted system (following 256-bit AES protocol), with strict technical and operational security processes in place to ensure high levels of data protection pertaining to data storage. As part of this secure system:

  1. BCG Expand ensures all data is encrypted both during transfer and at rest.
  2. The EDCI data environment undergoes regular vulnerability scanning and periodic penetration testing.
  3. BCG Expand ensures compliance with all applicable data protection laws and regulations.
Who has access to GP data submissions?

Only a very small number of BCG Expand benchmarking specialists have access to a GP’s data submission (purely to conduct data validation checks with the GP). GP data submissions are not accessible to client-facing BCG team members. EDCI GPs are the only entities with access to their data within the benchmark portal.

Can individual portfolio companies be identified in the benchmark?

GPs only submit anonymized portfolio company data (i.e. anonymizing both the fund names and the company names). It is important that the data is anonymized before it is shared with BCG to maintain confidentiality.

While the benchmark allows for flexible and tailored data cuts, no individual portfolio companies will be able to be identified. No data is shown in the benchmark when the sample size drops below seven (as agreed upon with the Steering Committee) for any data cut.

Who has access to the benchmark?

Only EDCI participants have access to the aggregated data, through the benchmark portal. Security methods to protect this include a two-factor-authentication (2FA) system to ensure only approved individuals have portal access. There are also robust firewalls in place within BCG to ensure that only GPs and LPs that are part of the EDCI have access to the aggregated benchmark and associated insights.

Will insights from the benchmark be shared publicly?

While the majority of the benchmark insights will remain within the EDCI community, the Steering Committee has approved the public sharing of some limited, high level insights to help the EDCI shape the future of the private equity industry’s approach to ESG (in line with the EDCI’s mission). Research, if publicly shared, will be presented only in an aggregated format that highlights key industry trends.

For insights from the the inaugural year of the EDCI, please refer to BCG’s publication: New Data Shows How Private Equity Stacks Up on ESG.

Why do I need to sign a data privacy agreement to join the EDCI?

Keeping access to the EDCI benchmark within the community of EDCI participants is a foundational principle of the EDCI. This is designed to both protect participant data and incentivize Initiative uptake. As the legal entity responsible for creating and ensuring the quality of the benchmark, BCG is currently the owner and steward of the benchmark’s IP. This allows the EDCI Steering Committee to ensure that only EDCI participants can access the benchmark data and insights and that all participants who have access are complying with the terms and conditions. BCG’s role is one of a steward and supporting partner to the EDCI Steering Committee, and will always follow Steering Committee guidance on the use of this intellectual property (with use clearly restricted to EDCI participants).

Data Submission

How can GPs share data with the EDCI?

GPs currently aggregate their portfolio company data using an excel template and submit it through our submission portal.

Additionally, the EDCI Steering Committee has recently approved a decision to allow participating GPs to submit data to the Initiative via an in-bound API for the 2023 edition of the EDCI. This is an open (and completely voluntary) offer to all ESG data platforms currently storing ESG data on behalf of EDCI GPs that are interested in putting in place this functionality. This update is intended to help streamline the data submission process for GPs. Submission via the excel template will continue to be an option for GPs.

We invite technology platforms that would like to learn more about this update to reach out to info@esgdc.org with any questions.

How often will the data be requested?

GPs are asked to report data on an annual basis, by April 30 of each year. LPs are not responsible for reporting any data.

Who is responsible for aggregating the data?

BCG is currently serving the initiative as a secure and neutral third-party aggregator of anonymized data through BCG Expand, a fully-owned subsidiary that specializes in benchmarking.

How is this data supposed to be reported to EDCI? What is the process?

You can find more information on how to submit data and the Metrics Guidance in the respective sections of the website. In terms of process, participating GPs need to (1) commit to the EDCI and (2) sign a legal agreement in order to submit data. Once BCG Expand has received a data submission, the BCG Expand team reviews and validates the data points (following up with the GP directly with any queries).

Are there any templates on which the data needs to be submitted?

Please find the reporting template here.

How do GPs select which funds/strategies to include in the initiative? Do expectations differ for majority-owned companies versus non-control investments within participating funds/strategies?

While the ultimate aspiration is for each GP to get to 100% coverage, and we encourage GPs to provide as much data as they can, this is at the discretion of each participating GP.

We acknowledge that it may be easier to collect and quality-control data from majority-owned companies. To this end, each GP is selecting which funds/strategies to report on based on a commitment to provide the highest quality data (on a “best efforts” basis). For example, for the inaugural year many GPs selected their largest funds and committed to report on data from their majority-owned companies.

Do portfolio companies typically have data readily available for the selected metrics?

We hope that focusing on fewer initial metrics will allow any portfolio company to collect robust and quality data. However, we acknowledge that portfolio companies vary in their understanding of and ability to collect ESG metrics. For example, some companies do not know how to measure Scope 1 and 2 emissions, which are material but complex, while others already collect this data. Encouragingly, in the inaugural year, across ~1,900 portfolio companies, the initiative saw metric submission rates of more than 80% for the majority of mandatory metrics.

How can you know that portfolio companies report their data correctly?

While data submissions are not currently externally audited, there are two mechanisms that help to ensure data accuracy:

  • BCG Expand conducts data validation (e.g. checking data for outliers, ensuring data submissions are internally consistent, checking data submissions against peers) and reverts to participating GPs with questions as relevant
  • GP portfolio company data is also shared with relevant LPs (when this is requested of GPs), and (in many cases) regulators, which helps to ensure the data is of high quality
Will the data reported to the aggregator be provided at the portfolio company level or fund level?

GPs will report data to BCG Expand at the portfolio company level. GPs will anonymize both the company and fund name before sharing the data.

Data reported to BCG Expand will only be used in an aggregated fashion, and cannot be extracted at the GP, fund, or portfolio company level. The data shared with BCG Expand will be governed by the data privacy legal agreement with BCG Expand and cannot be used for any other applications.

Metrics

How were these metrics determined?

The ESG Data Convergence Initiative aligned around the following guiding principles to inform the selection of the core metrics:

  • Globally accepted: Selected from the most accepted and widely regarded frameworks
  • Meaningful: From a financial or societal impact perspective
  • Comparable: Allowing performance comparisons between portfolio companies and GPs
  • Dynamic: Evolving metrics as tracking improves and understanding and materiality evolves
  • Straightforward: Simple to accurately track, ensuring data quality and integrity
  • Actionable: Tied to specific actions under GPs and portfolio companies’ control
  • Objective: Minimizing subjectivity or need for interpretation

The Steering Committee will review the metrics every year and consider additions or modifications. In doing so, the Steering Committee will prioritize materiality and work collaboratively with members to increase the sophistication and utility of the ESG reporting. The goal is to create a long-term mechanism that improves the quality, availability, and comparability of ESG data in private markets over time.

For example, during the 2022 sprint, the Steering Committee ran an extensive metric review process in close collaboration with members and ultimately decided to add one metric, the share of women in a company’s C-suite.

How will the metrics be tracked and reported?

The metrics will be tracked and reported in a standardized format for underlying portfolio companies in covered funds. The data will be aggregated into an anonymized benchmark (at the portfolio company level) which is accessible by both participating GPs and LPs. However, only GPs will be able to directly compare their portfolio companies with the aggregated public and private benchmark by metric (data at the portfolio company level is not made available to LPs).

Why don’t you track more metrics?

The founding members of the ESG Data Convergence Initiative felt that converging around an accessible set of core metrics was critical for enabling the private equity industry to make progress on ESG. The EDCI Steering Committee considered a wide variety of potential metrics for inclusion and chose to align around a core set of 15 metrics that all fulfilled the key guiding principles.

Are these the only ESG metrics that LPs will require from GPs going forward?

No. We recognize that LPs will ask for more than these 15 metrics going forward. However, when participating LPs seek information overlapping with or covered by EDCI metrics, we expect that they will align data requests to match the EDCI standardized definitions. We also hope that this effort will be part of broader conversations around how to converge on quantitative and qualitative ESG reporting that is more meaningful for our industry.

Is the EDCI planning to include the metrics mandated by Sustainable Finance Disclosure Regulation (SFDR)?

We want to track metrics that align with the most prevalent frameworks and are common across a critical mass of GPs. We will strongly consider SFDR metrics given their relevance for our industry and European funds in particular, although we are unlikely to incorporate all of the SFDR metrics in a single year.

What types of benchmarks are developed and how are they used?

Participating GPs and LPs have access to a set of benchmarks showing averages, medians, and trends over time using normalizers. These benchmarks are highly flexible; participating GPs and LPs can filter the benchmarks by company attributes such as sector, industry (sub-sector), geography, growth stage and company size (revenues and FTEs). GPs can use the benchmarks to understand how their portfolio companies compare relative to their peers, and to identify opportunities for improvement. LPs use the standardized benchmark to compare data points across their portfolio, and to better understand their portfolio exposure and performance on ESG domains relative to various benchmarks.

For more information, check out the Benchmark Demo page.

Has the group considered launching a specific set of metrics for different strategies (e.g., infrastructure, private credit)?

We believe that the partnership that we continue to build through the ESG Data Convergence Initiative will enable interesting work in the future across different strategies. We have considered extending the existing metrics to include industry-specific data points, and we are exploring applications in private credit markets.

For example, the EDCI Steering Committee has been engaging with The Principles for Responsible Investment (PRI), the Alternate Credit Council (ACC), and the Loan Syndications and Trading Association (LSTA) on a recently announced and publicly available ESG Integrated Disclosure Project (ESG IDP) template for the private credit and syndicated loan markets. The ESG IDP Template provides borrowers with a harmonized and standardized means to report ESG information to their lenders.

How can I provide feedback about current metrics or potential additions?

EDCI members can provide feedback about current metrics or potential additions through several channels – including feedback surveys, focus groups, and direct outreach to the EDCI team. For example, ahead of the Steering Committee metrics sprint, there were opportunities to share feedback through a survey or through focus groups, followed by a call for feedback from all participating GPs and LPs on the shortlist of potential changes that emerged from the sprint. We expect to continue this iterative model of participant engagement. As mentioned, you can always reach out at any point to the EDCI team at: info@esgdc.org

External engagement

How does this initiative interact with ESG technology providers and data platforms?

The ESG Data Convergence Initiative is tech platform-agnostic. The initiative focuses on advancing a standardized set of ESG metrics and mechanism for comparative reporting, not on creating a new technology provider or data platform. GPs and LPs can continue to use their existing data systems to transmit, aggregate, and report ESG data from the ESG Data Convergence Initiative.

We are aware that GPs and LPs often use separate technology providers, so identifying one provider to replace all existing platforms would prove to be challenging. Our approach has been to be tech platform-agnostic and focus on harnessing energy to report on metrics in a standardized way.

The EDCI Steering Committee has recently approved a decision to allow participating GPs to submit data to the Initiative via an in-bound API for the 2023 edition of the EDCI. This is an open (and completely voluntary) offer to all ESG data platforms currently storing ESG data on behalf of EDCI GPs that are interested in putting in place this functionality. This update is intended to help streamline the data submission process for GPs. Submission via the excel template will continue to be an option for GPs.

We invite technology platforms that would like to learn more about this update to reach out to info@esgdc.org with any questions.

How can I share information about the EDCI with my LPs / GPs?

To assist you in communicating with your key stakeholders we’ve created One Page Briefs. The briefs provide a summary of the initiative, motivations for joining and an explanation of how to get involved.

For insights from the the inaugural year of the EDCI, please refer to BCG’s publication: New Data Shows How Private Equity Stacks Up on ESG.

Contact

Who should I reach out to if I have questions about the benchmark portal?

For questions about the usage of or access to the portal as well as technical questions about the metrics and guidance, please reach out to: benchmarksupport@esgdc.org

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