Further Collaboration Between PE Firms And ESG Data Providers As Private Markets Placed Under Greater Scrutiny

Further Collaboration Between PE Firms And ESG Data Providers As Private Markets Placed Under Greater Scrutiny

Novata, an ESG data platform launched in 2021 to help private market investors integrate ESG criteria into investment decisions, and S&P Global Market Intelligence, an information services and solutions provider, recently announced a strategic partnership to help bridge the gap between financial and non-financial data. Novata’s platform will be integrated with S&P’s iLEVEL platform to enable customers to manage financial and non-financial information in one place. This can be viewed as part of a much broader movement to integrate sustainability and financial reporting — a key policy objective of the CSRD — and will bolster efforts to improve data quality in private equity. 

This strategic partnership is the latest in a series of collaborations between private equity firms and ESG data providers — including PulsESG’s partnership with Clayton, Dubilier & Rice and ClarityAI’s partnership with BlackRock’s alternative investment management platform eFront — which reflect the mainstreaming of ESG in private markets. In June, Brookfield Asset Management announced it had raised a $15 billion impact fund; the largest private fund dedicated to global decarbonization to date. In early September, venture capital fund Energy Impact Partners (EIP) raised a €390 million climate fund aimed at investing in tech companies accelerating the transition to a net zero economy.

As private capital flows into sustainably labelled funds increase, so too do concerns over transparency and integrity. Publicly traded companies are subject to more scrutiny and regulatory pressure than privately held companies meaning that concerns over data quality and availability are heightened for private market investors. While much of the regulatory pressure has so far been directed towards public investments (e.g. SFDR, CSRD), private companies are beginning to feel the heat. In August the FCA updated its Alternatives Supervisory Strategy stating it would be expanding its focus on private equity funds which market themselves as ‘sustainable’. There is also an expectation that mandatory disclosure requirements will nonetheless impact private companies. Entrepreneurs and General Partners ought to take note. 

Until recently, the market for ESG data providers had been heavily dominated by a few key players whose methodologies lend themselves to collecting information on public companies (often they rely on company self-disclosures, news sources and NGO campaigns). Yet as ESG integration becomes more rigorous and standardised in private markets, data providers such as Novata, which are set up to cater to the specific needs of private equity, will gain ground rapidly. With 9 out of 10 people employed in the corporate sector working for private firms and $6.3 trillion in assets under management in the private equity sector, a huge opportunity now exists for data providers to infiltrate this space.