Most private equity firms' portfolio companies are unsure about how to report their ESG metrics to investors, while general partners experience significant data collection delays, according to a survey released Thursday by London-based software provider KEY ESG.
The survey report noted a PricewaterhouseCoopers estimate that private market environmental, social and governance assets in Europe are expected to skyrocket to between €775.7 billion ($840 billion) and €1.2 trillion by 2025, and account for up 42.4% of the entire private market industry's assets. The first European regulatory deadline for portfolio company-level ESG reporting is June.
The KEY ESG survey of 100 general partners and portfolio companies in Europe, the U.K. and U.S. found that while 75% were required to report ESG data to limited partners, 90% of them were unsure of how do to so. Survey respondents were primarily from midmarket private equity firms, with 43 each from Europe and the U.K., and 14 from the U.S.
One of the biggest problems for general partners was the time it takes to collect ESG data, which can be as long as 12 weeks. Survey respondents said they missed reporting deadlines and risked having deals stall or fail, and 70% said they would prefer to focus on the most material information that leads to better metrics and ESG performance.
Along with the ESG data that LPs request from them, the fund managers are also struggling with ESG compliance risk, the survey found, with 75% of the U.S. GPs saying they are unclear about which Europe-based fund regulations apply to them and by when.
Heleen van Poecke, CEO of KEY ESG said in a news release about the survey that it highlights the significant hurdles that exist for private equity, but "it also indicates the relatively untapped potential of the significant impact private equity ownership can have once GPs know what to report on and start collecting granular data to manage towards improvement."
Meeting the ESG regulatory demands will also help them "understand their portfolio companies better, improve their investment processes and ability to raise funds as well as make better investment decisions," Ms. Van Poecke added.
