While some financial services sectors have been early and consistent in their use of technology, PE is still lacking the high-tech implementations for a large part. Whereas liquid markets had to deal with vast amounts of data for quite some time, Excel spreadsheets were sufficient to manage data in PE until recently. Regulatory changes putting pressure on private market participants to disclose and report on ESG are now providing a massive push for the industry to look to technological applications to simplify their ESG journey. This article takes a look at 3 ESG-related areas where technology can act as a game changer for private capital investors.
Data collection & management
Considered as one of the main challenges in private markets, ESG data collection can be simplified significantly by technology:
- Templates can be pre-defined for use – ensuring data is entered into the system in one common form
- Integrated workflows automatize data collection, email notifications and reminders simplify communication between all stakeholders
- A web portal with user-friendly design can simply input processes
- Integrated review processes help secure the “right” data is stored
- Data can be captured into one common system – ensuring a single source of truth is created
- ESG metrics and data can be centrally tracked across the entire (aggregated) portfolio on one platform
Generating regulatory compliant outputs
Regulatory compliance is a challenge that is becoming more pressing, with SFDR and EU Taxonomy regulations coming into full effect. This is an area where we see technology as real value-add:
- Portal technology helps assess the EU taxonomy eligibility of the portfolio – based on a pre-mapping an initial assessment can be made of whether portfolio companies are eligible for the EU Taxonomy. An automated process can allow for the pre-mapping to be verified by the fund manager (assessing if an economic activity is relevant for the portfolio companies in its portfolio). Outputs generated by the platform can range from various aggregations (by NACE sector, industry, funds, total portfolio) and can provide content for periodic reports
- Automatic workflows and calculations help understand negative impact with Principal Adverse Impact KPIs (SFDR) –pre-structured templates can be utilized for automatic workflows and additional KPIs can be derived based on calculations set out by regulation. Customised dashboards can give clarity, showing exactly who delivers what, the progress made, the PAIs’ coverage etc.
- With data being entered into the system, it is automatically producing content for periodic reports and stakeholder requests – this can significantly reduce resources required
With regulations continuing to develop in the industry, investors can either try to ensure that they run their own regulatory compliant solutions or gain peace of mind by using a system which is continuously updated according to latest industry regulations. Tech-enabled solutions can therefore provide a simple way to continuously comply with international frameworks and regulatory requirements.
Making sense of ESG data – moving beyond regulation
Whilst complying with ESG disclosure regulations is a key topic, actually using the data collected to make better informed decisions going forward is also on top of investors’ minds. But how can technology help decision-making?
- Analytics specifically developed for private markets can help create portfolio look-through: the use of integrated platform analytics allows the investors to drill down on their own portfolios and really understand ESG risk and opportunity. Features allow slicing and dicing the data as needed to create additional customized analysis to support the bigger ESG strategy
- An integrated platform also provides the possibility to enhance the available data by connecting with external standards and frameworks such as the SASB or the UN SDGs
- A connected tech-enabled approach allows for all ESG data collected to have the ability to be built into existing financial analysis and reports
With implementation deadlines looming, our team is working intensively with our clients to ensure they are setting themselves up for success. For a step-by-step guide to ESG stay tuned or contact our team for a preview!