Risk Exposure is the second part of Preqin’s ESG product
. It was created in partnership with SASB by combining SASB’s industry risk-mapping with Preqin’s rich proprietary deals information.
To find out more about SASB, click here
Preqin's ESG Risk Exposure module shows the count of active investments (portfolio companies) within a fund that fall under each of 26 issues (which are further divided into Environmental, Social, and Governance pillars). The brighter the yellow color of a given issue, for example Energy Management, the more portfolio companies operate in the industry/field that presents this inherent risk. It doesn’t mean these risks will become material, but it’s helpful to use this heat map when assessing exposure of a given fund, and for starting the conversation with a GP regarding mitigation of specific risks.
The risk-mapping module covers both the firm and fund level. With the ability to look at all active PE/VC/PD portfolio companies, Preqin can analyze risk against SASB’s 26 factors, to show where there is volume in exposure to materiality.
The below graphic shows a sample of what Preqin’s interface can display. In practice, the module allows you to click between a firm or fund chart and see a table with all a firm’s funds, or all of a fund’s individual assets. To see SASB's materiality map of 26 factors, click here
GPs are now required to demonstrate their capabilities assessing the ESG risk exposure of their investments when managing portfolios. At the same time, an LP frequently conducts due diligence for a particular GP's investments, to make sure they are adhering to the LP's chosen ESG policies. Preqin's data platform, Preqin Pro, now has a 'Risk Magnitude Score
'. This ESG Solutions
tool features risk scores for over 124,000 private companies, based on both industry and geographical risk. This provides a top-level score of GP’s investment at the asset and fund-level, through digestible and comparable metrics. In practice, GPs and LPs use these risk evaluation metrics to benchmark themselves against their peers, to understand the level of ESG risk associated with their investments, and as a tool for reporting to comply with regulatory requirements.
When industry participants are evaluating portfolios, they often consider the potential for positive impact resulting from the investments. With ESG changing the expectations of alternative asset investors all the time, understanding the short and long-term impacts of an investment is key. With Preqin's Impact Assessments
LPs have the ability to assess GP portfolios based on its potential to make a positive impact, using the Sustainable Development Goals
as a reference. Using these robust metrics, LPs can gather the transparency they need to understand the likelihood of positive impact. With transparent data and ESG metrics, industry participants are equipped with the knowledge to help them invest responsibly.
In this lesson, we covered the challenges involved in ESG investing, how global approaches and frameworks differ, and how industry participants can measure their ESG risk exposure.