Difficulties in setting ESG criteria, along with competing and unclear standards, are clouding sustainable investing in the private market fund space, a global poll of investment professionals has found.
More than a third of investment professionals said they had difficulty qualifying and quantifying what counted as ‘impact’, while a large number cited the difficulty in obtaining “robust” ESG data for private companies.
The findings come from Pitchbook, a research and data provider, which published its “2022 Sustainable Investment Survey” on 5 October. The outfit reported:
European firms are more likely to require investee companies to report on certain ESG factors, with those in the Asia-Pacific and Latin America regions not far behind.
Only a minority of investors and asset managers in the survey reported “using an external, standard framework to measure impact,” Pitchbook wrote.
The Pitchbook report stated that the “lack of clarity around how to define and measure impact outcomes, lack of robust data on ESG factors for PE companies, and difficulty benchmarking non-financial goals were frequently cited among the top three challenges of sustainable investing.”
Pitchbook found that about one-fifth of “GPs that require portfolio companies to measure and report on financially material ESG factors stated that portfolio companies are using a standard framework to do so.”
That does not mean there is a universally agreed reporting rulebook. Pitchbook noted that firms are not “converging around one” single standard, but “only that they are using one of the many available frameworks.”
“For those that asserted they used a custom framework, respondents often noted that frameworks were created in-house or with the help of consultants, with several stating that the information was ‘confidential’ or ‘proprietary’.”