ESG standardisation expected in three to five years, says survey

Fund managers expect standardisation to be a few years away, but they’re worried about being accused of greenwashing in the meantime, an Intertrust survey suggests.

Fund managers expect full ESG standardisation in the next three to five years, according to a survey from Intertrust. The survey took responses from 150 fund managers from North America, EMEA and Asia surveyed over the last few months.

The report also found that some 88 percent of respondents expect GPs to re-focus portfolio companies in favour of ESG considerations over the next 12-24 months.

“Mirroring the wider economic, social and political momentum behind ESG that was the hallmark of 2019, it’s clear from our latest research that ESG considerations will grow in significance for the private equity industry – and that covid-19 has accelerated that trend,” the report said.

But until ESG data and metrics can be standardised, nearly half of respondents (46 percent) worry that a lack of hard data in ESG and the use of in-house ESG scorecards and methodologies will leave the industry open to accusations of “greenwashing”.

The biggest obstacles to widespread adoption of ESG initiatives in PE are quantifying and monitoring the ESG implementation process (said 29 percent of respondents) and cost and resource constraints (25 percent). Other respondents felt the complexity of managing multiple sources of ESG data (18 percent) and a shortage of knowledge and expertise at the GP level (15 percent) are the main challenges.

Further adoption may require GPs to become more comfortable with ESG programmes – as 15 percent of respondents cited a shortage of knowledge and expertise at the GP level to be biggest obstacle preventing ESG adoption, compared with 9 percent at the portfolio company level.

Intertrust said in the report that it’s up to tech-enabled service providers to make the push forward toward ESG standardisation and benchmarking. Sister publication Private Funds CFO recently reported that ESG ratings firms are beginning to step into private markets, potentially pointing to greater standardisation and transparency for private equity ESG initiatives.