Alternative investing specialist LGT Capital Partners has begun to complement its ESG manager analysis with portfolio company data gathered with the help of a private equity industry initiative.
“This enables us to analyse ESG performance more directly and steer for more specific outcomes over time,” the $100bn asset manager said in its latest ESG report.
“We believe this is the next frontier in the integration of ESG in private equity.”
LGT is one of more than 450 investors participating in ESG Data Convergence Initiative (EDCI), which was launched in 2021 under the leadership of CalPERS and Carlyle. Participating firms agree to report a core set of ESG metrics in a standardised format to be shared directly with invested LPs – Germany’s largest pension fund joined in December – and aggregated into an anonymised benchmark.
LGT said the EDCI had allowed it to increase the proportion of data points for individual portfolio companies, and that the EDCI data collection process represented an important shift in its approach to measuring ESG in its strategies.
“Essentially, we are moving from a primarily qualitative reading of a manager’s ESG positioning and processes to adding a quantitative layer of data that allows us to analyse ESG outcomes and steer future actions,” it said.
It now has a base data set covering 1,800 portfolio companies with around 26,000 data points, it added.
“As a member of the EDCI we are committed to establishing this private equity industry initiative as the core format and structure for private equity ESG performance data and we expect that this data set will eventually cover all our private equity strategies,” it said.
Manager progress, stagnation
In its report, LGT also drew on 11 years’ worth of proprietary data to show how its managers had evolved their approach to ESG integration. It said 73% of the assessed private equity managers now have robust ESG processes in place, up from 27% in 2014.
However, said LGT, this year it has noted a stagnation in percentage changes as compared to recent years.
In a statement, it said this could “likely be attributed to the challenges of improving further on already advanced baselines and the increasing complexity of ESG”. However, it had also seen managers taking concrete measures to move from ‘pledges to actions’ focusing on delivering measurable results.
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