Jaclyn Bouchard, executive vice president, head of ESG solutions and corporate responsibility, Preqin, explains that the ESG transparency problem is “solved” with more data.
As part of its coverage of Sibos 2022 in Amsterdam, Funds Europe reached out to financial experts on key topics at the conference. Read more analysis here.
Asset managers looking to make or offer investments that are ESG-friendly often identify data transparency and availability as a significant challenge. What can be done to overcome this?
The simple answer to solving the ESG transparency problem is more data – comparable, reliable and quality data. But, of course, ESG is a complex landscape, and there is no simple solution.
Private markets are historically accustomed to limits in transparency. However, as General Partners consider ESG risks and opportunities in their investment decision-making, and LPs feel pressure from regulations and client expectations, private markets are at a transparency tipping point. High-quality and reliable ESG data is essential to move from vision to reality. From our perspective, the more transparent the industry is on ESG reporting, the better our data and analysis can be for the whole private market lifecycle – it is a symbiotic relationship.
ESG’s integration into private markets is well underway with 42% of AUM across private capital managed by funds that have an active ESG policy – according to Preqin’s report ‘ESG in Alternatives 2022‘. Comparable ESG data is key to understanding the traditionally opaque private markets landscape. To get it right, we need to consider the lessons learned from ESG in public markets, alongside recognising the unique qualities of private markets. Quality over quantity is necessary though, in helping to identify core KPIs the industry can rally around for consistent ESG disclosure.
As ESG investing has evolved, the number of standards has increased, and so has reporting complexity. While progress is being made, alignment on common frameworks and guidance continues to be an issue. Unless there are clear and well-defined standards and definitions, assessing the quality and integrity of ESG commitments will remain a challenge.
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