A group of organisations has backed the launch of a technology platform to streamline ESG measurement, reporting and benchmarking in private markets. This is the second significant development in the area of private markets ESG data in the space of a week.
Novata, which is majority owned by its non-profit founders and its employees, will provide “an independent, unbiased and flexible open architecture platform for the private markets to more consistently report on relevant ESG data”, the firm said in a statement. It is based around 10 metrics that “consistently appear across leading ESG methodologies”.
The consortium comprises: private markets firm Hamilton Lane; data provider S&P Global; and two non-profits that are prominent players in impact investment: the Ford Foundation and Omidyar Network. Minority shareholders in Novata include members of the consortium as well as some of the general partners in its advisory circle: The Vistria Group, Clearlake Capital Group and Kohlberg & Co. Any proceeds from the GP’s investment in Novata will be donated to non-profits, the group said.
Novata co-founder and CEO Alex Friedman told New Private Markets that the way the organisation has been put together – as a public benefit organisation with both for-profit and non-profit backers – puts it in a unique “middle ground” position between purely commercial offerings (which might struggle to persuade PE firms to share data) and purely non-profit-led offerings (which might struggle to continue funding the endeavour). Friedman pointed to Verisk, an organisation founded in the 1970s, as having similar qualities. Verisk was started as a government-mandated co-op to help the insurance industry better share data across state borders and is now a listed company.
General partner advisers to Novata include:
– Bridgepoint (owner of New Private Markets parent company PEI Media)
– Clearlake Capital Group
– Kohlberg & Co
– KPS Capital Partners
– Lindsay Goldberg
– Summa Equity
– Thomas H Lee & Partners
– The Vistria Group
Novata will allow organsiations to download and use its framework for free and will fund itself by charging “a fair price” for users to access benchmarking data and reporting tools, said Friedman.
The launch comes at a critical time for sustainability in private markets, with LPs and GPs grappling with a long-running problem: inconsistent ESG data. Investors are now beginning to require consistent reporting of a variety of ESG metrics, perhaps most notably those relating to carbon.
“The majority of the world’s economic activity is driven by private companies. It is their approach to environmental and social impact which will ultimately accelerate the ideals of inclusive capitalism,” said Friedman in the firm’s launch announcement. “Our solution is unprecedented because it marks the first time that a group of non-profit and for-profit leaders in social justice, financial data and the private markets have joined forces to solve for the ESG fragmentation that has plagued the public markets.” Friedman was previously CFO at the Bill & Melinda Gates Foundation, another significant actor in the impact investment space.
The journey towards standardisation took a big step last week, when an influential group of LPs and GPs – led by CalPERS and Carlyle – announced they would be establishing an ESG data-sharing initiative. Seven large general partners agreed to track and report six agreed upon metrics from their underlying portfolio companies to their investors, and to share that data with the Boston Consulting Group, which would create aggregated benchmark data.
The Novata team was aware of the work that the CalPERS-Carlyle consortium was doing and thought it was “terrific” when that initiative, which Friedman believes will be compatible with their work, was unveiled. Friedman noted that other groups of organisations were working on similar initiatives.
Beta customers will have access to the Novata technology platform before the end of the year. Broader access is planned to be available in early 2022.