Calpers, Carlyle in ESG data push

More than a dozen investment firms overseeing more than $4 trillion in assets are banding together to standardize data on the environmental, social and governance performance of their portfolio companies.

Investors overseeing more than $4 trillion are banding together to standardize data on the environmental, social and governance performance of portfolio companies, in an effort led by the largest pension and one of the largest private equity funds in the U.S.

The California Public Employees’ Retirement System and Carlyle Group Inc. helped rally a group of more than a dozen investors to share and privately aggregate information related to emissions, diversity and the treatment of employees across closely held companies. More firms and institutions are expected to join.

“We need to start a common language across all these participants so we can actually, in a sustained way, make some progress,” Carlyle Chief Executive Kewsong Lee said in an interview. “By honing in on a set of common standards and common metrics, we start to standardize the conversations so we can really track progress. It’s really hard to do that right now.”

Blackstone Group Inc. and the Canada Pension Plan Investment Board, the country’s largest pension fund, are also part of the effort. Boston Consulting Group was tapped to aggregate the data. 

Private equity firms will be seeking to standardize and share data on greenhouse-gas emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement. Calpers CEO Marcie Frost said she would like to see these metrics expand to include data such as C-suite diversity and employee satisfaction.

She said one goal is to see how this information contributes to the financial performance of fund managers. 

“Private equity has been the highest performer for Calpers, but these are private companies,” Frost said in an interview. “Even if you are a private company, limited partners do need some transparency into how these companies are managed.”

The push could ultimately guide how investment dollars are allocated. Currently, investors must individually ask their money managers to track such data. Carlyle’s Megan Starr said that in a one-month span, her firm received more than 40 such requests for information, each asking for different sustainability metrics.

“We cannot listen to another panel on why ESG data is broken,” said Starr, Carlyle’s global head of impact. “We keep talking about the challenges, but we need to start talking about the solutions.”

Carlyle and Calpers began the discussions in January, and the group plans to meet every year. Other firms joining the effort are Bridgepoint Group, CVC, EQT, Permira, TowerBrook Capital Partners, AlpInvest Partners, APG, Employees’ Retirement System of Rhode Island, PSP Investments, Pictet Group, PGGM and Wellcome Trust. 

“We’ll start seeing meaningful results, or meaningful outputs, at the five-year mark,” though the data will start revealing trends in as early as two years, Frost said. “We’re in the very early innings of this, this is the first step to start collecting the data.”

Bloomberg, the parent company of Bloomberg News, provides ESG data to financial professionals.

[More: Are asset managers giving plain old funds a green tint?]

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