When it comes to private market investors creating a solution fulfilling current and upcoming ESG regulations in an efficient way, we still see many market participants struggling. On the one hand, it is challenges associated with data capture, standardisation and the efficient use of data collected to create content for regulatory reporting that are weighing on their mind. On the other hand, investors and managers find themselves under pressure to stay compliant as rules keep changing. Last but not least, many of the clients we speak to are telling us they want to get more value of the KPIs collected.
But where to start? This article will give show you an easy step-by-step guide to managing your ESG journey.
Defining ESG metrices to measure ESG performance and comply with regulation
Measuring ESG performance is challenging, and it is important to define the right ESG metrices that support your investment strategy and that help creating transparency around your ESG performance.
Regardless of how you are positioning yourself, leaning on regulation and guidance from the industry can be of big support for you and your stakeholders. Moreover, it supports the road towards more standardization. In addition to the SFDR and the EU Taxonomy there are several initiatives that can help e.g. the convergence project and frameworks such as the TCFD.
At AssetMetrix we are following all the different initiatives and regulation to ensure that our solution covers all requirements and supports standardizing data, wherever it makes sense.
As we all know fund-specific and GP-specific ESG data in private markets is not available as easily as traditional financial data. Therefore close communication between all stakeholder (investor, fund manager, portfolio company) is an absolute must.
After defining and confirming the ESG data points we suggest to set up a template which enables the manager/portfolio company to enter the information requested by the investor/manager.
Using a cloud-based platform can simplify the process of data collection and communication between stakeholders:
- 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
Working with AssetMetrix, our clients can rely on the use of pre-defined templates with questions ensuring all relevant data for the PAI statement are covered. Additionally pre-defined templates with a pre-mapping to the EU taxonomy based on the NACE code of an underlying company are available (fund managers assess if the mapped activities are relevant). Further KPIs can be collected as specified be the client in the onboarding process.
Data processing & management
What happens after receiving data? If you are considering working on a manual/pure excel base, there will be considerable time spent calculating the KPIs you need for delivering input towards your regulatory reporting.
In our digital platform-based solution example however, the next step would be for all data approved to flow into your system and the regulatory required calculations and aggregations to be automatically applied. In addition to the defined formulas that must be applied, an important factor will be to understand the coverage of the data points. You want to ensure that the PAIs delivered are understandable e.g. how many investments in your portfolio really reported with respect to the scope 3 GHG emissions? Without this aspect the number means very little.
As AssetMetrix offers an integrated platform, a seamless connection to other client data is guaranteed and therefore a data-driven single source of truth is established.
Tracking & monitoring
Once data collection is finalised and calculations and aggregations have been carried out, the next step is to ensure you are able to track & monitor. Within a digital platform-based solution this could be supported through access to customized dashboards, progress tracking of KPIs and PAIs, and assessing risk & opportunity with a portfolio look-through. Using external frameworks & standards (such as SASB or UN SDGs) can additionally enhance the analysis and help support your ESG strategy & make the impact and performance you create more tangible for your investors and/or stakeholders.
What are outputs you should be looking to gain in the end? First, having gone through all steps above you should now be able to fill the necessary reports for periodic regulatory reporting. Using the integrated platform-solution, you would automatically receive pre-filled disclosure templates for periodic reports based on the data that you have validated for upload into the system. You would be able to share data and reports on an ad-hoc basis. The collected data points can directly be shown added to quarterly reports which investors can view, analyze and further distribute to their stakeholders.
Efficiency and clarity throughout your ESG journey
When planning your own ESG journey, efficiency & transparency are key. All underlying aspects from data collection to visualization and output production can be addressed through a digital platform-based solution.
With implementation deadlines looming, our team is working intensively with our clients to ensure they are setting themselves up for success. For a free consultation, contact our experts and see how we can help!