When it comes to ESG data, ‘perfection is the enemy of progress’

'Let's get the data out there', say attendees at PEI’s Responsible Investment Forum 2022, in response to growing LP demands around ESG data.

As LP requests around ESG data continue to grow, GPs will find solace in the knowledge that “nobody expects perfection”, said Matt Schey, senior director, sustainable investing & strategic projects at the Institutional Limited Partners Association (ILPA), at PEI’s Responsible Investment Forum 2022 in London this week. 

Much of the discourse around ESG reporting in private markets – and indeed throughout the course of the conference – has been led by concerns around imperfect data. However, Schey believes this is detrimental to progress. “Perfection is the enemy of progress. Let’s just get the data out there and worry less about what it says and instead, get it to a place where it can be improved upon”. 

The implications for GPs that are behind on ESG data reporting are far worse, Schey added. “LPs are busy making investments internally, both on training and recruiting staff, to better understand ESG data. Seeing the trajectory of where this is headed, if managers wait two or three years for best practices to emerge then they risk losing out on addressing portfolio company ESG performance. If by the time best practices emerge, you haven’t started those data conversations, you’re going to be left behind.” 

The ability for investors to gather consistent, standardised ESG data has been a point of tension within the industry for some years. An important development in the space has been the creation of the ESG Data Convergence Initiative. Since launching last year, more than 230 GPs and LPs have signed up, representing an aggregated $24 trillion of assets under management and around 2,000 portfolio companies, according to the organisation’s website. 

“One of the things that EDCI provides is ‘do-ability’. It is often better to make a decision and get started rather than worrying about if this decision is perfect,” said Heidi DuBois, global head of ESG at AEA investors, a US-based mid-market private equity firm.