September 26, 2024
We’ve got Charlie Mahoney, Head of US Sales at Novata, joining us to dive into the evolving role of ESG in US private markets. Charlie shares insights on how general partners (GPs) are navigating ESG—from early compliance to genuine integration. We discuss whether ESG is becoming standard practice or simply a box-ticking exercise, the regulatory pressures reshaping the landscape, and the importance of choosing the right partners in building a solid ESG strategy. Tune in to learn how ESG is evolving from a “do good” initiative to a critical component of risk management in private markets.
Sustainable Intelligence is an interview series from Novata that explores ESG and sustainability in the private markets. From carbon accounting to using data to create value, the series dives into the challenges and opportunities facing private market investors and company leaders as their integrate ESG across the business and respond to regulatory requirements. Each episode centers authentic dialogue, highlighting experts at the forefront of advancing ESG data collection and driving meaningful progress in the sustainability landscape. Listen to more episodes.
Ella Williamson: Welcome to Sustainable Intelligence, where we discuss all things ESG and sustainability for the private markets, brought to you by Novata. I’m Ella Williamson, and I’m thrilled to be your host.
Joining us today is Charlie Mahoney, Head of US Sales at Novata. He oversees the investor and private company sales teams. Charlie has an extensive background in ESG, coming from JUST Capital where he led the data revenue of the organization as the senior director of business development. Prior to that, he spent six years as a VP at Morningstar.
Therefore, he couldn’t be better placed to discuss today’s topic on ESG in the US private markets and how we can start separating the myths from reality. Charlie, many reports suggest that ESG is becoming a standard practice in private markets but what’s the reality on the ground? Are GPs genuinely integrating ESG into their due diligence and portfolio management, or is it more a box ticking exercise? Can I ask you to share some examples of firms that are truly making ESG a priority versus those who might be falling behind the curve?
Charlie Mahoney: Yeah. Thanks Ella for having me on. I would say the reality on the ground is that most GPs are in early days. Across their portfolio companies, most are trying to get a simple baseline after setting up an ESG policy or setting up an ESG committee. And from kind of the initial diligence phase where they’re incorporating ESG into the process of understanding how a company could fit into their portfolio. From there, they’re setting up monitoring practices where they’re gathering EDCI or SFDR data on a year to year basis. LP demand overall is still king. GPs that we talked to are getting inquiries from their LPs throughout the fundraising process, asking to disclose EDCI data or asking to disclose ESG data with no specificity on a yearly basis. The reality is that data collection is still a manual process. It’s becoming more common to ask portfolio companies for this data as they move to portfolio to portfolio. This will become standard practice.
But overall, GPs have a great opportunity to be a better partner to their portcos that are getting inundated with ESG requests, whether that be from their customers that are committing to net zero targets and asking about emissions across their supply chain, whether it be CSRD, the California regulations, ESG is coming up more and more for companies themselves, and GPs have a major opportunity to be a strong partner to their portfolio companies and help them baseline this information.
Ella: It’s fascinating to hear how the journey from simple compliance to genuine ESG integration can evolve over time.
Now Charlie, With increasing regulatory pressures and growing demand from investors, how do you see the role of ESG evolving over the next few years? Do you believe ESG will shift from being a “do good for society” initiative to becoming a really critical component of risk management for every business?
Charlie: Absolutely. I think this will become standard practice for companies, especially in the Private Markets, where more companies are staying private and upon entering a new private equity portfolio, them asking for this data is going to become more and more common. Having these baselines, having this information on hand will be continued to be requested. From a regulatory perspective, you see CSRD, you have the buildings performance standards laws, like local law 97 out of New York and other real estate laws across various states in the US being asked. You have the Senate bill 253 and 261 out of California. And then you have corporations that are committing to net zero targets, such as Pfizer, Walmart, Amazon that are asking their supply chains for these emissions disclosure.
I think as a company in the future state internally, if you’re starting to get all of these requests from customers, as well as investors externally, you might as well take the reins and organize it in a way that makes sense for the company. A good example of this is Novata, Novata is a B Corp. We’re a public benefit corporation. And from the start, we had our SOC 2, type 2 compliance, which allowed us to bring on bigger companies such as Ares, Silver Lake, etc. from the start. We have the right policies and the right governance in place to serve the largest customers in the world when they were ready for it.
Ella: So it’s clear that strong ESG practices not only help in avoiding ESG penalties, but also position portfolio companies for long term success, and I think that’s such an important point. So we know that the ESG landscape is filled with consultants, vendors, and various platforms like Novata, making it difficult for GPs to know where to start. How should firms approach selecting the right partner and tools to build a solid ESG strategy?
Charlie: Great question. I would say in the Private Markets, looking to your peers for references is critical. The private equity space is not large and the ESG space within that is even smaller. ESG is different. There are many different consultants and vendors that will pitch a different approach or a different value add. But the reality is to understand how the right ESG partner fits within your strategy. You have to ask questions around retention.
You have to see what other peers are doing. Folks are looking to community build and converge around different platforms, converge around different approaches, as well as different metrics. Like we see with the data convergence initiative and whether that’s the head of ESG at a 50 billion AUM shop, or a head of investor relations at a mid market 5 billion dollar firm, everyone wants to speak with others.
There’s no secret sauce. We’re all figuring this out as we go. Your peers will tell you what partners deliver on their promises from a product perspective, which ones fail to execute. Which ones have strong support teams and which ones charge an arm and a leg for an Excel output that you’ll never use!
Ella: I completely agree. And your point about leveraging the experiences and the insights from peers in similar markets really helps navigate the crowded ESG vendor landscape. So, thank you for that! So if we could move on slightly, given the complexity of ESG, how important is community building in this space? And what role do you see for companies like Novata in facilitating knowledge sharing among other GPs? Can you share any success stories you may have seen over the years?
Charlie: Yeah, absolutely. Novata hosts a number of different webinars, in-person events, dinners. We have the GP advisory committee, which is about 20 firms that help inform our data strategy, our product roadmap. But I think something that the head of customer success, Emily Sennett, and I, came up with a few months ago.
And I’ve had three sessions now on is Novata Connects. Novata Connects is a way to bring GPs together that are looking simply to speak with one another and, talk about how they’re approaching ESG, what platforms they’re using, what metrics they’re collecting, what they’re doing with the data post data collection and how they’re handling LP requests, whether that be related to fundraising. Or throughout the monitoring process. Novata Connects is not a sales pitch, we’re not going through a demo, there’s no thought leadership. We’re strictly bringing together GPs, putting them into breakout rooms,virtually, so they can chat with one another and gain value. That’s a great example of how we’ve supported 60 GPs in three sessions thus far, and this is something that we’ll continue to do every other month moving forward.
Ella: Charlie, thank you so much for sharing all your expertise today and helping us make sense of the evolving ESG landscape in the US private markets.
Until next time, let’s keep building sustainable intelligence together. Find out more at novata.com.