The PRI has been working with signatories to produce a Private Credit (PC) - Private Equity (PE) ESG Factor Map which is designed to facilitate collaboration between sponsors, co-investors and lenders.
The Map allows information obtained from portfolio companies to be shared with co-investors and lenders pre investment while also allowing ESG-related expectations and requests of portfolio companies to be consolidated. The map is designed to be filled in by target companies.
The Map contains ESG general and sector specific questions for target companies and highlights commonalities with other standard industry frameworks, to alleviate the reporting burden and create alignment.
Envisaged and produced by a range of PE and PC signatories, it was originally conceived to facilitate information gathering and sharing in the pre-investment phase of a deal. However, it can also help set ESG goals for the companies and track and monitor progress towards them in the post-investment phase.
The template can be easily adapted to investors’ existing proprietary ESG frameworks while offering other significant benefits:
- Providing standardised minimum disclosure guidance to help private companies prioritise ESG data during the diligence phase.
- Increasing access to ESG data for a broader set of stakeholders, including lenders, co-investors, consultants, service providers and investment banks (i.e. the entire ecosystem should steward disclosure and better data and access).
- Reducing the number and variations of data requests among the nodes in the private markets investing eco-system.
Collaboration across sponsors, co-investors and lenders can help reduce the challenges inherent in ESG integration. Improving the accessibility of private disclosures helps drive positive responsible investment outcomes. Indeed, the PRI has already started working with credit trade associations as part of the ESG Harmonization Credit Consortium to support material and consistent ESG disclosure within credit markets.
Commenting on the launch, Carmen Nuzzo, Head of Fixed Income, at the Principles for Responsible Investment, said: “The goal of the PC-PE ESG Factor map is to improve collaboration within the private equity and private credit sectors and to reduce information asymmetries. Private finance has an absolutely vital role to play in promoting responsible investment practices and driving improved outcomes. The sharing of data between firms across the private finance landscape is a core element underpinning this required systemic shift. Our aim with the launch of ESG Factor Map is to facilitate this collaboration, making important data immediately accessible for the sector and therefore ensuring investment decisions are better informed, with ESG factors at their core.”
These frameworks include the Sustainable Accounting Standards Board (SASB), the LSTA’s ESG questionnaire, the Task Force on Climate-Related Financial Disclosures (TCFD), CDP, the EU Sustainable Finance Disclosure Regulation (SFDR) ’s Principle Adverse Impact indicators, the Institutional Limited Partners Association (ILPA) ’s diversity metrics and the more recent Novata, e-Front and ESG Data Convergence Project indicators.
See ‘Private equity sponsors and lenders align to standardize ESG disclosure during due diligence’, PRI blog, 18 October 2021.Private
See ‘Credit trade association join forces with PRI on ESG credit harmonization’, PRI, 30 March 2022.