Holdouts from ESG data project raise questions about privacy

Some absentees from the ESG Data Convergence Project are struggling to get comfortable with how their portfolio company data will be used.

The ESG Data Convergence Project has successfully attracted more than 100 LPs and GPs representing $8.7 trillion in managed assets. This includes 12 of the 30 largest private equity GPs in the world.

But what of those not on the list? New Private Markets spoke to a number of large private equity firms – on and off the record – to find out why they have yet to take up the invitation to join.

Among the holdouts is London-headquartered Apax Partners. Ellen de Kreij, the firm’s lead adviser for its ESG practice, says there are “questions around data ownership” regarding the initiative. Apax’s sustainability leaders need a better understanding of “exactly how data will be used by the collective group”, de Kreij told New Private Markets.

“Our portfolio companies are competing in a dynamic marketplace,” she said. “They have concerns about where their data ends up, in what format and whether it will be made public in a way that could be out of context.”

Co-led by Carlyle and the California Public Employees’ Retirement System and launched last September, the initiative seeks to “create a critical mass of material, performance-based, comparable ESG data”, according to a statement released at the time. Influential and sizeable institutions are among the early signatories, suggesting that the project could constitute a big step towards standardised ESG data sharing.

Participants have committed to reporting data related to six ESG metrics – greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement. In the coming months, the project will work with the Boston Consulting Group to aggregate the data into an anonymised benchmark.

The ESG lead for another large private equity firm also raised questions about management of the data. “It would be interesting to understand what the final infrastructure to host the data looks like,” the person said, importantly noting that their firm had not ruled out ever joining the initiative: “We’re still always looking into initiatives and we’re always reconsidering.”

For TPG, joining the ESG Data Convergence Project is under consideration, a spokesperson for the firm said in a statement, but for the moment the firm is focused on developing its own data reporting capabilities.

“We continue to focus our resources on improving the fundamental quality of the ESG data being collected and actively supporting our portfolio companies to execute on their goals,” the spokesperson said.

KKR is the largest firm not yet involved in the initiative. When asked why it has not joined, a spokesperson said: “Our focus is on frameworks that take a materiality-based approach. That said, we also are collecting and reporting data in alignment with various sector-agnostic frameworks to our fund investors.”

The spokesperson noted other industry reporting initiatives the firm has committed to, including the Global Impact Investing Network, the Sustainability Accounting Standards Board and the Task Force for Climate-related Financial Disclosures.

“We are actively involved in multiple industry collaborations to enhance transparency as it relates to ESG management,” the spokesperson told New Private Markets. “KKR has been committed to being at the table and being part of the solution as the financial community works together. We incorporate external frameworks and leverage a network of external partners wherever possible.”

It’s too early to tell whether the ESG Data Convergence Project has reached the critical mass to be recognised as an industry-leading reporting standard. For holdouts to the initiative, the next chance to have outstanding questions resolved comes later this month on 23 February, when the Institutional Limited Partners Association hosts an informational meeting for investors.