In a rapidly changing world, Carlyle believes that impact is a lens for finding efficiencies and capitalizing on new growth, as we see the market valuing a wider set of business models and competencies. By helping our portfolio companies improve across these dimensions—from creating sustainability-driven growth strategies to building more diverse teams—we believe we will build more valuable businesses and deliver better results for all stakeholders.
ESG data is a critical to understand and advance ESG improvements in companies over time. Its current state, however, is incredibly challenged. Investors can’t see standardized, comparable ESG data across their portfolios, asset managers are struggling under a mounting volume of bespoke ESG data requests, companies are sorting through an increasingly complex set of ESG frameworks and standards, and broad-based data about ESG performance for private equity-owned companies doesn’t exist in the market.
In order to address these challenges, we needed to take a long-term view on strategy and aspiration, but a near-term view on tactical implementation. To this end, in 2021, we co-led the creation of the ESG Data Convergence Project alongside CalPERS and a number of our other LP and GP partners, forming the first-ever GP-LP cohort to create a critical mass of material, performance-based, comparable ESG data from portfolio companies.
GPs and portfolio companies benchmark ESG positions and track progress / LPs get transparency
The objective of the group is to streamline the private market’s historically fragmented approach to collecting and reporting ESG data in order to create a critical mass of meaningful, performance-based, comparable ESG data from private companies. This allows GPs and portfolio companies to benchmark their current position and generate progress toward ESG improvements, while enabling greater transparency and more comparable portfolio information for LPs. Importantly, this enables us to more effectively help portfolio companies improve their performance on material ESG issues.
100 LPs and GPs sign on to report on six KPIs for 1300 private companies
This project maintains the long-term objective to create a critical mass of meaningful, performance based ESG data from private companies, prioritizing near-term action. Impact thus far includes:
- Over the first 8 months of 2021, 7 asset managers and 8 investors came together to agree upon 6 metrics that GPs would collect in the initial year: Scopes 1 and 2 greenhouse gas emissions, renewable energy usage, board diversity, work-related injuries, net new hires, and employee engagement.
- To date, more than 100 LPs and GPs have joined the effort, meaning the six KPIs will be provided for more than ~1300 private companies. Whenever an LP asks for these data points, participating GPs will provide those 6 KPIs using the same definition and same format – enabling transparent/comparable data across portfolios.
- In order to accelerate the field at large, each asset manager has agreed to anonymize portfolio company ESG data, and aggregate centrally into benchmarks to drive industry insights – Boston Consulting Group published a research paper based on historical data submitted by participating asset managers. Since the launch of the project in September 2021, over 100 GPs and LPs have signed on, representing over $8 trillion in AUM.