January 30, 2023

Increasing ESG data transparency in private markets

Private market interest in ESG is on the rise, but concerns around data transparency and data quality continue to be a challenge for investors. In a 2021 FTSE Russell survey, 59% of global asset owners cited the lack of standardization in ESG data, scores, and ratings as the largest roadblock to increased adoption of sustainable investment. Similarly, according to Capital Group’s ESG Global Study 2022, challenges with data quality and consistency are among the biggest barriers institutional investors identified when it comes to adopting ESG and integrating environmental, social, and governance considerations into the investment process. 

To overcome the challenges with ESG data transparency, investors are increasingly looking for solutions to help them collect, measure, and manage portfolio company ESG data more effectively. This, in turn, will help them make more informed business decisions. This year, we expect general partners (GPs) and limited partners (LPs) to continue to seek efficient options to manage ESG data and produce comprehensive reports. 

As a solution created to address the unique challenges of private markets, Novata is well-positioned to help GPs overcome these key data management challenges. Below are three ways Novata is working to help improve ESG data transparency and quality in private markets.

1. Providing a clear starting point for GPs

The ESG space is complex and rapidly evolving, making it challenging for investors new to ESG to navigate. GPs need to be aware of the regulatory and industry disclosure requirements in different regions, understand relevant frameworks, and identify the metrics that matter to the firm and portfolio companies. Novata supports GPs through this process by offering a flexible ESG framework and a platform integrated with metrics from widely accepted standards such as the ESG Data Convergence Initiative and the Sustainable Finance Disclosure Regulation. This flexibility helps GPs determine a clear starting point for selecting metrics that reflect their ESG priorities so they can generate the necessary ESG data that stakeholders (investors, regulators) are requesting.

2. Streamlining the data collection process

According to the 2021 Private Funds CFO Leaders Survey, 65% of private market firms had fully manual processes in place to collect ESG data. Additionally, a Bain survey noted that LPs and GPs lack the tools to measure what’s working and what’s not in regards to ESG performance, with fewer than 25% of GPs able to provide data on Scope 1 and 2 emissions. Managing large amounts of data manually can be a challenge, which is where an intuitive data management software solution can help automate processes and save GPs time during the data collection process. The Novata platform makes ESG data collection simple for GPs and portfolio companies by streamlining the collection process and providing step-by-step guidance to support portfolio companies with providing data.

3. Contextualizing data for better insights

Incorporating ESG into investment decisions creates opportunities to better manage risks and create value, but understanding the data is important to optimize these opportunities. GPs need to be able to contextualize data to understand how a portfolio company’s performance compares to peers and industry standards. This insight will help identify areas to improve operational efficiency of portfolio companies, mitigate existing and emerging risks, and increase valuation. Novata’s solution aggregates data from the thousands of companies on its platform to create benchmarks that let managers and asset owners compare ESG data anonymously to industry peers. 

4. Connecting financial and ESG data

While many ESG metrics are considered “non-financial,” they do have tangible implications for the financial returns of a company. Being able to manage financial and non-financial data from one database provides a holistic view of performance, which enables GPs to make more informed decisions about how ESG drives financial outcomes and increases data transparency in reporting. Last year, Novata partnered with S&P’s iLevel platform to help GPs simplify the process of collecting financial and ESG data and provide a single source of transparency on company performance. 

Increasing Your ESG Data Transparency With Novata

With the reporting season underway, GPs can benefit from a simple and customized technology solution to easily collect, report, and analyze ESG data. The Novata platform provides a clear starting point to confidently choose what metrics to track and measure, a painless data collection process with in-platform guidance and support, and insightful analytics and benchmarking tools to streamline the ESG data management process. Reach out to learn more about how Novata can help you on your ESG journey.