Joining us today is David Wingate, Manager on Novata’s Advisory team, to explore how ESG due diligence is evolving from a fragmented, qualitative process to a streamlined, data-driven approach that connects sustainability and financial outcomes.
David explains why sustainability data needs to stay consistent from diligence through to exit, how focusing on material, decision-useful metrics unlocks value, and the risks of collecting too much, or the wrong, data. He shares what investors should prioritize over the next three to five years and offers his take on the most overrated ESG metric, the red flag he never ignores, and the one word that sums up the future of ESG due diligence.
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Conversation with David Wingate (Transcript)
Ella Williamson: Welcome to Sustainable Intelligence, where we discuss all things sustainability for the private markets. I am Ella Williamson, and today we’re diving into a big milestone for Novata: how we are rethinking ESG due diligence for long-term value. Joining us today is David Wingate, one of the driving forces behind Novata’s brand-new ESG due diligence solution.
David is a manager within our Advisory team and brings deep expertise in sustainability strategy, carbon accounting, and data storytelling. And he’s been at the forefront of making sure our new solution meets the real-world needs of investors and companies alike.
So, let’s get started with the basics. What role should ESG play in due diligence, and how has that changed over the past few years?
David Wingate: Sure thing, and thanks so much, Ella, for having me on the show. I’m really excited to be here. So, in my opinion, ESG, and I guess sustainability writ large, should be integrated into every due diligence process, especially in the context of the private markets. Without accounting for ESG factors, investors run the risk of overlooking key drivers of risk as well as opportunities for a target acquisition.
So, let’s think of some examples here. You know, human rights abuse in a supply chain can lead to consumer backlash. Just think about I think it was Tesla and the Uyghur population a couple of years back. Maybe even closer to home, physical climate risk from extreme weather events can, you know, significantly impact a company’s operations. Think about Hurricane Helene in western North Carolina.
In the early days of ESG investing, due diligence was pretty nascent, and it evolved to mirror the format of other diligence workstreams. And when we think about other diligence workstreams, so cyber, IT, legal, we think about long-term, even long-form reports: 40- to 50-pages long, long calls with management teams, 1,000-document data rooms, et cetera. Long, laborious, et cetera.
But as ESG maturity among investors has grown, the understanding of where ESG and sustainability fall into the diligence process has really matured as well. There’s a greater emphasis on data. So, not just taking a company’s stance on an issue that they tell you over a phone call as gospel, but instead really digging into the key metrics that would actually indicate performance on an issue. And you can’t just fudge on a phone call.
Additionally, connection to the monitoring process and being able to tell a cohesive story from investment to the hold period to the exit, all on ESG. And then, finally, efficiency. You know, investment professionals are really, really busy. They’re trying to close a deal. They’re trying to manage like six or seven diligence streams at one point or at one time. And if you give them a 40- to 50-page report, they’re gonna say, “I don’t know what to do with this.” And so, delivering key insights with the least friction possible to those investment professionals who need the highest leverage information possible to contribute to that investment decision is really key.
Now, to me, that long-form, time- and labor-intensive diligence process is absolutely well-intentioned, but it fails to capture performance in an objective and actionable way. The evolution of ESG due diligence, to me, is going to be in solutions and processes that are data-oriented, resource-efficient, and ultimately connect data from investment through the hold period to exit.
That kind of leaves us in an interesting state of transition with regard to ESG due diligence, where investors understand that the real value in ESG management comes from data and telling an objective ESG narrative from investment to exit. But funny enough, diligence has not really evolved yet to match that strategy.
Diligence to this point remains largely based on subjective analysis of data rooms and management responses to qualitative diligence questions—and the latter, in particular, often skews toward the performative rather than being grounded in any sort of hard data.
Ella: I love how you’ve framed that shift. It’s going back to the point—it’s all about connecting real data with real value. And how can you do that in the most efficient way? We often hear that due diligence, in general, is a really fragmented process. What are some of the common bottlenecks investors face, and what’s at stake if it stays that way?
David: Sure. I mean, I think there are a couple of ways to think about why diligence would be fragmented. The first is that you actually have multiple vendors who are working on parallel diligence workstreams. So, for example, you often have a tech vendor, a legal vendor, an ESG vendor, a cybersecurity vendor, et cetera. And even though they’re working on separate workstreams, they often overlap and create redundant analyses. And so, that’s kind of fractured in that they’re working on the same things but not necessarily talking to each other.
In the context of ESG due diligence specifically, the process is fragmented in that often the investment leads, in other words, the decision-makers, only really consider the key takeaways of the ESG diligence workstream, which does not align value-wise with the price, time allocation, or labor intensity of consultant-led ESG due diligence processes.
And then finally, we’ve already mentioned this, but the ESG information collected at diligence is often not well tied to the ESG information collected during the hold period. And that kind of makes the creation of a real ESG narrative difficult. So, following from the above, common bottlenecks that you see from that process include duplicative workstreams, a mismatch between report outputs and the level of concision needed by deal teams, and then finally, the most important one: an inability to justify the real value of ESG diligence and ESG management generally, because the link between ESG data collected at different stages of the investment lifecycle is difficult to connect to one another.
And the consequences of this process are pretty significant. The first is that ESG diligence is expensive and labor-intensive, and because of that, deal teams don’t like it, and they often deprioritize both the ESG diligence workstream as well as any ESG improvement after the investment closes.
The findings from an ESG workstream, ESG diligence workstream, rather, often lack objective grounding and result in sometimes opaque and hard-to-action recommendations. And kind of the sum of all of this is that creating actual value from ESG progress over the hold period of an asset is made much more difficult by the lack of well-connected data, from investment data at the time of acquisition to the hold period, and then finally to performance on ESG at exit.
Ella: Interesting. And it sounds like now is the time something needs to change and we need to free up time and make sure we’re being more strategic about how we collect this data and how we use this data. If we can stick with this vein, how can investors go from simply collecting sustainability data to actually interpreting it in a way that can inform other investment decisions down the line?
David: Yeah, I think that one word you mentioned there that’s really critical is strategic. And when I think about strategic ESG diligence, I think about being disciplined in the approach.
For me, the biggest step investors can take is ensuring they’re collecting a disciplined set of data that actually connects ESG performance to financial outcomes. And when I say disciplined, I mean that the set of data collected should really be constrained to what’s materially important from an ESG perspective.
For example, collecting scores of metrics on worker injuries from a professional services firm, where, you know, employees are all sitting at desks in an office, yields no real value. The benefit of collecting a disciplined list of ESG data from a prospective investment is that by really collecting the metrics that matter, investors can isolate the most important ESG data from the noise.
The flip side is collecting too much ESG data at diligence and being unable to make sense of what’s important and what’s tangential. And part of that discipline is not just constraining what you’re collecting—it’s about going deep on what you’re collecting that actually matters and actually impacts the bottom line of a company.
To continue with the professional services example: ideally, we’re not collecting 10 different metrics on worker safety. For that professional services firm, let’s talk about something that is more material. We know that employee turnover and headcount change have a material financial impact. It can cost as much as 50% of someone’s annual salary to go out and find somebody to replace them.
So, really taking the time to make sure the data you collect on employee turnover for the professional services firm, given its industry, is high-quality data, and that you understand the financial implications of that data that you’re collecting on that metric is how an investor can go from just collecting data willy-nilly to actually interpreting it in an investment-useful way.
Ella: Great. And based on what you said there, identifying those signals that actually tie back to sustainability performance and financial outcomes in your industry specifically, if I could ask you, David, to go one step further: there seems to be a growing emphasis on connecting pre-deal diligence to post-deal monitoring.
Why does that continuity matter, and what does it look like in practice for those who aren’t too familiar with that flow?
David: Yeah, sure. It’s a great question. The continuity matters for a deceptively simple reason, in my opinion, and that’s because a portfolio company’s business model (or a target and then a portfolio company’s business model) and therefore, the ESG risks and opportunities it faces do not change significantly between when an investor invests in the asset, while they are holding the asset, and when they ultimately exit the asset.
Yes, I guess you could make the argument that if you’re a venture capital investor investing in pre-seed companies and the company radically changes its business model, maybe it doesn’t fit for that.
But when we’re thinking about the types of assets investors are willing to spend money on to ESG diligence in the first place, usually—hopefully—they actually have a business model. And if they have a business model, the ESG risks and opportunities are not going to change significantly. Of course, they could change a little bit. The human capital risks that a 1,000-person company faces are different from those that a 100-person company faces. But the base risks, at a broader level, are the same. But I’ve gone on a little bit of a tangent here.
That continuity matters because the risks and opportunities are similar across the investment lifecycle. They do change, but the core areas stay the same. But for some reason, the ESG data collected on the asset does, in many cases, change during those different periods. You might be collecting different information during diligence, during hold, and during exit.
But, if you’re not collecting consistent data across those three stages, then it’s hard to create a cohesive, data-driven narrative across the investment lifecycle that shows how strong ESG management either mitigated risk or in the ideal case, created value for an investment. In practice, this comes down to what we discussed earlier: collecting a disciplined set of material data and doing so consistently. So how would an investor get there? In my opinion, it’s a three-step process:
First, evaluate your investment, or even your typical areas of investment and, based on industry, geography, and size, tailor your initial ESG data request to metrics and data points that are truly impactful to the company. It’s key, again, to stay disciplined there and not overwhelm the company with requests so as not to dilute the quality of the information you’re getting in the first place.
Additionally, giving companies guidance year over year on how to collect and report this data. Ideally, you’d automate processes where possible. So, for example, having certain metrics like turnover get calculated automatically through headcount changes or energy consumption get calculated or reported automatically through utility management software.
Finally, housing this data centrally, ideally in a dynamic environment where you can track changes year over year, control version histories, and most importantly, avoid data loss or losing the paper trail. So aka, don’t use Excel that just has a different underscore, insert date here, over and over again because I guarantee you’re going to lose the data or lose data quality over time.
Ella: When you break it down into those three steps, it sounds obvious. But this is a process that’s been changing and maturing over many years. It’s about that consistency piece across the long term to be able to actually illustrate value and the difference from the outset all the way through to exit.
One big question that I’d like you to answer. Looking ahead, how do you see ESG due diligence evolving over the next three to five years? Is there anything that investors should be preparing for or thinking about as they look at how they streamline their processes?
David: Yeah, sure. That’s a good question. I think a lot of it is what we’ve already talked about, you know, moving from this qualitative labor intensive model to one that is more targeted to the metrics that actually matter for a given investment. And a very happy benefit of this is that deal teams will begin to see ESG due diligence less as a burden and more as something that is decision useful by cutting out the information deluge and focusing in on the most material ESG metrics. It also wouldn’t be an ESG or sustainability discussion in 2025 without discussing or taking into consideration the current political climate. You know, we’ve already probably talked about this on an earlier episode, but investors aren’t necessarily stopping ESG activities, especially for diligence, but are changing their tact and they are changing the way that they present that activity to the outside world. And diligence can follow those trends by first and foremost, focusing on the metrics that are most material to a company and therefore taking away ammunition from those that would suggest ESG due diligence is a frivolous activity with no value add.
Focus on the things that actually matter and impact the company’s bottom line and you’ll face less questions about the value of collecting the information in the first place. Additionally, centering diligence conversations around resilience and avoiding some of the buzz words and acronyms that have become a little bit third rail. Finally, creating data driven narratives that actually show the objective value of strong sustainability management practices, rather than pointing to subjective data points.
Ella: It’s really exciting to think about how much stronger ESG due diligence could become over the next few years based on all of those things you just listed. And David, to finish on, what I’d love to do is ask you three quick fire questions. Whatever comes to mind, go for it. All around ESG due diligence. But here it goes. What is the most overrated ESG metric?
David: Mm. For me, it’s compliance training. Yes or no. Call me cynical, but I just don’t think employees pay much attention to compliance training unless it is really bespoke to their role. So, ethical sales training, insider trading for, you know, stockbrokers, et cetera. But just a general compliance training for your average white collar employee. I just don’t think it’s very useful. Otherwise, I’m much more interested in number of compliance incidents or even the existence of proper escalation channels—so, for example, whistleblower protection or a whistleblower policy—than I am in did your employees watch a 10-minute video telling what a compliance program is in the first place?
Ella: Yeah. And what is one red flag you never ignore in ESG due diligence?
David: Sure, I mean, there are many and to our earlier discussion, it does depend on the industry.
And so, for that reason, one red flag, that I will never ignore in diligence is frequent sexual harassment or discrimination based on any protected class. Once that boys club culture or mentality infiltrates a management team, or even a middle management group, it gets really difficult to attract good talent, and that’s without even considering the human impact on employees who are subject to the harassment or the litigation that a company might face from employees who wouldn’t tolerate that behavior from their place of work.
Ella: Really great points there David. Thank you for that. And to end, on slightly more subjective, one word to describe the future of ESG due diligence.
David: Hmm. Are compound words with a hyphen okay?
Ella: Whatever you like.
David: Right, in that case, data-driven, but let it be known there’s a hyphen in the middle, so it’s one word.
Ella: Brilliant. I love that.
Thank you so much, David, for joining us and sharing all your due diligence wisdom today. My big takeaway is that this is not about collecting more ESG data. It’s about collecting data that is truly material to your business, that you can connect to financial outcomes, and that ultimately helps drive value creation across your entire investment lifecycle.
And that’s exactly why Novata has built this new ESG due diligence solution that you’ve been at the forefront of. Please do reach out if you would like to learn more from David and the rest of the team. Until next time, let’s keep building sustainable intelligence together. Find out more at novata.com.
