Private equity (PE) firms are turning their attention to ESG key performance indicators (KPIs) to meet stakeholder expectations, ensure their firm is aligned to industry best practice, and create value across their portfolio. Beyond the usual methods of red flag screening and due diligence, portfolio company ownership presents an opportunity to establish KPIs and position firms for successful ESG reporting.
Video: Tracking ESG Key Performance Indicators in private equity
Limited Partner Pressure
Limited Partner pressure has been a key force driving uptake of ESG policy adoption and due diligence in the private equity industry. Limited Partners have placed increased scrutiny on ESG KPIs. Across international financial markets, Limited Partners are being affected by regulatory reform generating new ESG disclosure mandates We should anticipate increased requests from Limited Partners to General Partners around ESG performance.
Limited Partners do not require – or want - comprehensive data overload; however, stakeholders are increasingly expecting to see demonstrated improvement in ESG topics important to a given business.
Guidelines for ESG KPIs
KPIs are intended to respond to the needs of a firm's stakeholders to track and demonstrate shared value.
Some KPIs are universally trackable across industries and provide important insight into how portfolio companies fare in comparison to their peers and the wider business market. Some of the universal ESG KPIs that are commonly tracked are provided below.
- Energy consumption and efficiency
- Greenhouse gas emissions
- Staff turnover
How do you choose the right ESG performance metrics?
Although some KPIs do apply to a variety of industries, high quality ESG KPIs generally should not be viewed as a collective set of metrics that can be applied to businesses universally. Useful KPIs are metrics directly related to risk and success of a specific business given its business model (e.g. product and service offering, regulatory environment, geographic footprint, industry and position in the value chain, extent of horizontal and vertical integration, etc.).
It is important not to select more KPIs than can reasonably be tracked and managed. ESG KPIs can often be developed to cover areas and collect data on topics where data may already exist, or if not may be easily attainable. Beyond mattering to a given business, good KPIs should be:
- Comparable over a given time period (e.g. quarterly, annually, etc.)
- Benchmarkable to peers in similar industries.
ESG KPIs are not limited to quantitative data but must be quantifiable. For example, an annual employee survey can be used to capture employee satisfaction via a numerical scoring system that can then be tracked over time.
Centralised online KPI tracking
As both strategic advisors and technical consultants, we translate sustainability factors into investment opportunity; enabling you to create value with confidence. We partnerwith private equity firms to develop a strategic direction for ESG planning and to manage KPIs at portfolio, company, and facility-specific granularity. Using a proprietary centralised reporting platform to track and manage ESG KPIs, we help clients to identify ESG topic management and specific action items to show improvements toward strategic goals or industry benchmarks.
ESG KPI Dashboard Form-16x9.png
Talk to us about ESG
We partner with private equity firms and corporations as strategic advisors to transform ESG factors into value creation; from the vision to delivery. Complete the form to set up an introductory call.
No Content Set