It’s Time for Private Companies to Come Clean on ESG Institutional InvestorIt’s Time for Private Companies to Come Clean on ESG Institutional InvestorIt’s Time for Private Companies to Come Clean on ESG Institutional Investor
Impact Investing Forum 2023
London. May 04-05, 2023.
Private companies are being pressured to provide more information about their performance on governance, environmental, and social issues. Gary Gensler is the chairman of Securities and Exchange Commission. He has asked fund managers who manage ESG mandates for evidence to back up their claims. This message was passed from regulators to asset mangers, who in turn have been asking their portfolio companies for details about their ESG practices. Gensler stated that many funds are now claiming to be ‘green’,’sustainable’, ‘low-carbon’ and other such terms in a speech he gave before the European Parliament Committee on Economic and Monetary Affairs. “I have directed staff to review current practices, and consider recommendations regarding whether fund managers should disclose criteria and underlying data to market themselves as such.
Private companies are often not required to disclose their financial information. However, there are creative ways to circumvent the black box and comply with Gensler’s call. Larry Lawrence, executive director and chief of ESG products in the wealth management market at MSCI ESG Research said that public companies have been publishing ESG information in their financial reports. This makes it easier for investors to track their performance and for rating agencies to assess their ratings. Lawrence stated that there is little information about alternative assets such as private equity and private loans. To address this transparency gap, MSCI created an ESG analytic tool similar to those it developed for the public markets. It chose to address the “E” part first by forming a partnership with Burgiss. Burgiss is a data and analysis provider that focuses on private markets, and is based in Hoboken (New Jersey). The index provider began tracking the carbon footprint private assets starting in October using market information from Burgiss and a model that it developed. The new analytical tool is capable of estimating carbon emissions for over 15,000 private companies as well as nearly 4,000 active private equity or debt funds. Remy Briand, global head ESG and climate at MSCI, said that the tool now can estimate carbon emissions for more then 4,000 private companies. Third parties are putting pressure on private companies. Third parties are putting pressure on private companies to disclose their ESG data. Blackstone, Caryle and the California Public Employees Retirement System have partnered with BCG to study the ESG disclosures of their portfolio companies. Some have expressed concerns that private equity could be used as a safe haven for high polluting divestments, given the increased regulatory pressures and disclosure requirements. The BCG report found that private equity-owned companies were more willing to disclose quantitative GHG [greenhouse gases] emissions. Vinay Shandal (Managing Director and Partner at BCG) stated that private companies are often smaller, more efficient, and less bureaucratic then their large public counterparts. “Many of these sustainability initiatives demand that companies move quickly. It’s much more difficult to do this in a public company.