Private fund investors and managers now have a common benchmark for measuring environmental, social and governance factors, Preqin said Tuesday.
Preqin, a provider of alternative assets data, said its new ESG Indicators will give investors a way to analyze portfolios against both ESG and financial performance targets.
The Preqin ESG Indicators begin with widely accepted frameworks such as Sustainability Accounting Standards Board factors and the UN Sustainable Development Goals index, and applies them to a proprietary industry taxonomy, private capital deals data and fund-level performance database. That generates baseline ESG scores for a portfolio, based on the underlying assets' industries and geographies.
Fund-specific ESG information from fund managers and other data sources are in the planning stages.
The ESG Indicators were designed "to provide asset owners with a common, meaningful baseline in their conversations with fund managers about ESG across their private market investments," Dmitri Sedov, Preqin's chief product and marketing officer, said in a statement.
In a recent blog post, Mr. Sedov said that the growing private capital industry "is uniquely positioned to bring greater transparency and information symmetry to ESG policies across the company spectrum, from start-ups to (small and midsize enterprises) to unicorns. Through better data, disclosure and reporting, private capital will be a driving force in bringing ESG investing to light."
According to Preqin data, nearly half of alternative fund managers will consider ESG principles in every investment they make by 2023. Preqin officials predict that, by then, all fund managers will be expected to have clearly articulated policies and procedures for addressing ESG risks and opportunities.
Other Preqin predictions for 2023 are that disclosure regulations and tax incentives will help direct capital to more ESG-friendly investments, but there will still not be a global ESG standard, so market-leading general partners will have to drive transparency and ESG reporting advances.
Preqin also sees ESG becoming more polarized about E and G in private markets, and the proliferation of green and specialized ESG to meet growing demand from investors.
