Why ESG Data Is Vital in the Alternatives Industry

Preqin ESG Solutions provides the necessary transparency to make strategic investments

The alternatives industry is in a constant state of flux. Every day, new activity, data, and trends influence the direction and growth of the sector. One area in particular is standing out, rapidly growing, and impacting the very fabric of the industry: ESG. 

Environmental, social, and governance (ESG) data, while increasingly adopted across public markets, has largely been scarce in private markets. This is not to say private markets are avoiding ESG – in fact, many capital allocators and asset managers regularly use or seek out ESG data across private market asset classes. However, these efforts tend to be idiosyncratic, through direct engagement, or inconsistent across various players and their use cases.

Over the years, Preqin has helped drive the nascent growth of ESG across private asset classes. We added high-level ESG information in 2019, including the introduction of ESG policy and impact investing policy status, as well as third-party ESG affiliations. Now, taking the next step, our goal is to answer one simple question: ‘What is the full extent of disclosure around ESG in private markets?’

To that end, Preqin has worked with more than 50 clients through a partnered research and development program to identify, collect, and make actionable a core set of ESG data designed specifically for private market participants.

The culmination of our efforts is a two-part product: Preqin ESG Transparency and Preqin ESG Risk Attribution, collectively referred to as Preqin ESG Solutions. 

Transparency in ESG
When it comes to ESG, visibility is often the greatest challenge. In fact, in most cases, just getting a summary of a fund’s ESG compliance can be impossible and this makes it difficult to find ESG-compliant GPs, and time consuming to weed out those who don’t meet the desired criteria. With Preqin ESG Transparency you get access to 37 key indicators across more than 1,500 GP profiles. These indicators provide critical information on each GP’s disclosures, alongside their source documentation, and help you identify the funds and GPs that are disclosing their position freely. 

To avoid framework fatigue, we focused on indicators pulled only from industry-leading frameworks such as SASB, UNPRI, TCFD, and public market ESG Ratings providers. This helped us vet 285 potential data points to find those most relevant to private markets, which we then validated with more than 50 industry participants.

Managing Investment Risk with ESG Data
One of the greatest benefits of ESG data access relates to risk management. It’s essential an LP is not overexposed to any one particular issue, and so detailed visibility at an intricate level is critical to enhancing outcomes. 

Preqin ESG Risk Attribution helps LPs evaluate the ESG risk exposure of a fund at a baseline level. By leveraging active deal data in Preqin’s existing database against the industry-leading SASB Materiality Map, risk factors can be identified quickly and easily. These are then reflected as heat maps, showcasing the level of risk each area is exposed to. 

Using ESG Data to Make Better Strategic Decisions
Access to ESG data allows LPs and GPs to make better decisions that align with their strategies. Whether it’s in the fund selection process where comparable data points are required for effective analysis, or in conducting due diligence on a GP via granular transparency indicators, high-quality data helps to ensure alternatives stakeholders can make the best decisions. 

Preqin ESG Solutions
ESG Solutions was built to help stakeholders across the alternatives industry maximize their fundraising, asset allocation, benchmarking, and due diligence efforts. With key data points across LPs, GPs, and funds, ESG Solutions provides the insights necessary to optimize the effectiveness of these activities and achieve strategic success.

Designed to become the private market’s standard for how ESG factors at the firm, portfolio, and asset levels are measured, compared, and communicated, ESG Solutions provides essential insights allowing you to make the best strategic decisions. As ESG’s influence grows, this data's significance in achieving success in the alternatives industry will only increase.

If you are interested in trialing Preqin ESG Solutions, request a demonstration.