This article first appeared in affiliate title Private Equity International.
As part of its annual awards process, Private Equity International selects an individual to be named Game Changer of the Year. This year the team selected someone from the ESG universe.
For all the progress that has been made on ESG within private markets over the past decade, one significant obstacle – a lack of conformity around data reporting – has prevented the movement from reaching its full potential. The challenge has often been how to align around targets and measurement systems in a way that provides meaningful and comparable data points that set the foundation for sustained action on ESG.
Enter: Megan Starr, global head of impact at Carlyle Group, who last year instigated what could be the industry’s best chance of standardising approaches to ESG – the ESG Data Convergence Project. Starr joined Carlyle from Goldman Sachs’ Investment Management Division in 2019 to design, execute and implement the firm’s long-term impact strategy and oversee the ESG team, which leads Carlyle’s investment diligence and portfolio company engagement work.
Under her watch, Carlyle has joined those breaking new ground when it comes to innovations such as sustainability-linked loans. The firm sourced a $4.1 billion ESG-linked credit line from a consortium including Bank of America last year, which it claimed was “the largest ESG-linked private equity credit facility in the US” and “the first to focus exclusively on advancing board diversity”. In February 2022, it became the first high-profile US private markets giant to formalise an emissions plan aligned with a net-zero target, per New Private Markets.
However, it is Starr’s work on the ESG Data Convergence Project, which Carlyle co-leads with the California Public Employees’ Retirement System, that promises to have the most far-reaching impact. Participants will track and report six metrics: Scope 1 and 2 greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement. It aims to create a critical mass of material, performance-based, comparable ESG data, enabling GPs and portfolio companies to benchmark their position and accelerate progress, while providing LPs with greater transparency and more comparable information.
“ESG is one of the more collaborative corners of finance, which is why the ESG Data Convergence Project was even possible,” says Starr. “We have a similar collective objective as a private markets industry – better, more quantitative, comparable performance data on ESG, so that we can accurately assess progress over time and potential correlations with financial performance. We worked together to agree on a common way of tracking data in order to make that happen.”
As of January, more than 100 LPs and GPs representing $8.7 trillion of assets and 1,400 portfolio companies had joined the project. With those numbers, Starr says: “We have already hit that critical mass that we aspired to.”
If the project succeeds, Starr’s influence could be felt not only by tens of thousands of LPs and GPs globally, but also the millions of beneficiaries and clients that would benefit from the positive impact ESG has been proven to have on returns.