Pictet Group
Private equity and sustainability: from measurement to improvement
Executive summary
The ESG Data Convergence Initiative (EDCI) is a global initiative to advance environmental, social and governance (ESG) reporting in private equity and drive progress on ESG and financial value.
In our second annual report, we note year-on-year response-rate improvements in the number of GPs, the number of funds, and most importantly a circa 90% increase in the number of portfolio companies.
But there is still further to go: circa 45% of Pictet Alternative Advisors’ (PAA) private equity net asset value is captured by the data, and response rates furthermore vary by metric (only 55% of underlying companies disclosed their Scope 1 emissions, for example).
The data highlight that the median private equity PAA portfolio company is less carbon intensive than the median public company, with 5.5 tCO2e[1] per $1 million of revenue versus 10.6 for the public benchmark.
There is nevertheless plenty of room for improvement: companies in the private and public firms benchmarks reduced their emissions intensity at a faster pace than PAA companies, and private companies overall seem to lag public counterparts in adopting renewable energy.
The measurements captured in the EDCI data now allow us to focus our engagement efforts. Specifically, we see the importance of the 80/20 rule: for example, just 10 companies are responsible for circa 70% of reported Scope 1 emissions on which we have data.
As well as working to boost the participation rate over the next year, we will be able to use these data insights to target our work where it can have the greatest effect. Broader and deeper responses by the private equity industry will facilitate further concentration of efforts, in what we hope will be a virtuous cycle of improvement.
More than 550 companies reported – representing an increase of circa 90% compared with the previous year.
EDCI at a glance
| What | Why | How |
The EDCI is a global initiative to advance ESG reporting in private equity and drive progress on ESG and financial value. It was launched in October 2021, and Pictet has been a Steering Committee member representing LPs since then. | It was launched to address the low comparability and standardisation of ESG data across the private equity industry. The EDCI’s ambition is to streamline the collection and reporting process for ESG key performance indicators, to increase transparency and facilitate the comparability of data between companies and sectors. | By collecting data through six categories of ESG metrics, mainly on GPs’ portfolio companies’:
Benchmarks are produced to allow investors to compare their portfolio companies’ performance with peers.
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| Over 450 GPs and LPs have joined the project, representing over $38 trillion in AUM and 6,200 portfolio companies (2023 cycle) | ||
