Preqin ESG Solutions: Private Markets Urgently Need More Robust Data

The following article is a sample from Raconteur's Sustainable Investment report, published on 24 November 2020 by The Times.

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Private markets urgently need more robust data

There has been a buzz around environmental, social and governance (ESG) in private markets for the last few years. This grew to fever pitch after KKR announced in February that it had raised a spectacular $1.3 billion with its KKR Global Impact Fund. As demand for more sustainably invested assets grows rapidly, so does the need for better ESG-related data in the sector.

Barriers to ESG Adoption
Investors are thinking about what ESG data they need to drive portfolio choices, such as sector allocations or selecting new managers, and how quickly it will allow them to act.

A roadblock to further ESG adoption in private markets is continuing questions about the veracity and usefulness of data, and about greenwashing, which means presenting your investment as more ethical than it is. Bob Vickers, head of sustainability solutions at Preqin, says: “We’re just now at the tip of the iceberg with data provisioning in private markets, and we expect continued evolution over the coming years. Preqin is committed to getting the maximum amount of useful data possible from managers and we are unique in our ability to leverage our relationships in private markets and access data.” 

“As an investor, you want data to be as objective, high quality, consistent and useful as possible. You also want it updated as frequently as possible. Preqin is committed to achieving all those things.”

Vickers also warns the problems associated with ESG adoption are small in comparison to the damage that could come from not adopting ESG criteria, for example, around climate risk.

ESG Framework Fatigue
One challenge to better data provision is the plethora of ESG frameworks available, such as those from the Sustainability Accounting Standards Board (SASB) and the TCFD. Parts of these frameworks are often not relevant or suited to private markets. This leads to framework fatigue, when investors become so tired of choosing and comparing frameworks, they end up using none.

“We tackle this fatigue by using the most codified frameworks only, not creating new ones”, says Vickers. “By marrying what managers disclose with that we know about who invests where, we can address these problems and create insight and insider views.”

Preqin’s ESG Solutions provides visibility of environmental, social and governance factors at scale across limited partners, general partners and ESG funds. The range includes transparency and risk attribution models that map data against the SASB materiality risk matrix and give insights into the potential ESG risks. In building ESG Solutions, Preqin looked at 300 data points from a range of frameworks. It filtered them in relation to private markets and found only 15% were applicable and useful. Preqin then transmuted these targeted data points into a private market setting to maximise usefulness. “This solution gives users one view of risk,” says Vickers. “We have found it gives them a palpable sense of relief that they don’t have to create something; we’ve done it for them. Now they can build their processes around those metrics.”

“Developing these solutions involved an incredible amount of attention to investors’ needs. We are seeing the fruits of this rigour in client feedback that it’s an excellent, usable starting point. It is a crucial opening baseline as we begin the ESG movement in private markets."

Read the full article, and other features from key industry players, in the Raconteur's Sustainable Investment report.