3 Winning Strategies: Streamline ESG Data Collection for Private Equity Investors

There’s a lot of talk these days about the importance of high quality ESG (Environmental, Social, and Governance) data. Not only are LPs and stakeholders demanding increasingly stringent proof of impact from the companies they invest in and buy from, regulators like the SEC are setting the stage for sustainability disclosure requirements in the near future. But how exactly should investors go about securing ESG data without wasting precious time, manual labor and resources? The answer: streamline the data collection process. 

Part of this means putting in the work upfront to develop the policies and practices needed to create fast, reliable, and scalable processes down the road. In this article, we’ll explore three effective ways (and a bonus tip!) to optimize ESG data collection to save you time without sacrificing quality: 

• Standardize your current data collection process
• Automate processes where possible
• Integrate your ESG strategy at the portfolio company level
• Bonus: Work with trusted data partners who can accelerate your ESG strategy

Standardize your current data collection process

Private equity investors benefit from standardizing ESG data collection processes by using clear frameworks and targets. Figure out which frameworks are most applicable to your companies and use them to guide the development of data collection tools. Be sure to set appropriate metrics that align with industry or sector-specific ESG indicators. Identify in advance any required reporting by other stakeholders. (Much work has already gone into the identification of key metrics by sector. Check out our guide to ESG reporting frameworks as an easy first step!) Doing prep work will help you hone in on the most relevant sustainability-related risks and opportunities material to your portfolio. 

Funds can also develop standardized templates or questionnaires to collect data from portfolio companies, to help maintain consistency and comparability of metrics across the board. PwC outlines several key steps to take when developing an appropriate data collection strategy for your portfolio: 

• Understand the requirements and goals of the organization.
• Determine responsibility and accountability for ESG and sustainability strategies and reporting within the organization.
• Assess the reliability and availability of required data.
• Identify and remediate data gaps.
• Establish a sustainable, repeatable process and internal controls to collect and aggregate data and remediate data quality issues in an efficient and effective manner that facilitates reporting and decision-making.
• Maintain and store ESG data in accordance with regulatory requirements and company policies.

Automate processes where possible

Another way to cut down on the time and labor involved in ESG data collection is to take advantage of automation tools. Automation frees up valuable time by providing: 

• Increased efficiency: Automating the data collection process reduces time-consuming manual efforts, unlocking resources for other critical tasks. 
• Improved accuracy: Automation minimizes the risk of human error that can occur during manual data collection and entry. 
• Timely data analysis: Automation speeds up data collection, analysis, and reporting—meaning investors can make informed decisions promptly, identify emerging trends, and proactively address ESG risks and opportunities.
• Scalability: Software tools can handle large datasets and support the integration of data from multiple sources, resulting in more comprehensive ESG analysis across an investment portfolio.

Employing the use of digital platforms or software tools can offer significant benefits for private equity investors. One of the key advantages is cohesive project management, particularly since these tools provide a centralized system for managing your ESG data collection efforts. With a unified platform, investors can easily streamline workflows, track progress, and make sure all necessary data points are captured consistently. 

This type of cohesive project management approach leads to better data quality and rigor by using systems that enforce standardized data collection protocols. It reduces manual efforts and potential human errors. Most importantly, you gain the upper hand of being able to make well-informed decisions based on information you can trust.

Integrate your ESG strategy at the portfolio company level

Another way to incorporate ESG into the heart of your business strategy is to focus on promoting awareness and accountability throughout the organization: from the fund level, to the board level, and all the way down to each and every single company in your portfolio. It’s particularly important to weave ESG efforts into the operations of your portfolio companies.  Stakeholders on the ground floor oftentimes struggle to feel seen or heard in higher-up ESG conversations taking place at the investor level. Engage with your portfolio companies by:

• Launching initiatives to educate employees, stakeholders and partners on the importance of prioritizing ESG factors. 
• Highlighting sustainability-related challenges and opportunities. 
• Fostering a culture of responsibility and accountability toward ESG goals and targets.
• Embedding ESG data collection requirements and reporting frameworks into the company's existing processes.
• Aligning ESG data collection with regular financial and operational reporting to help avoid duplicative efforts. 

All of this together helps drive a more holistic and impactful approach to your investment practices. Specific strategies to streamline ESG data collection will vary based on the investment strategy, industry focus, and size of each fund. Remember to customize and adapt your strategy to the unique circumstances of your portfolio.

Bonus: Work with trusted data partners who can accelerate your ESG strategy

Fund managers who want to get proactive about their ESG strategy should seek out partnerships and opportunities to collaborate. You can—and should—actively engage with industry associations (e.g., the EDCI or UN PRI), specialized ESG data providers, and technology platforms dedicated to ESG data collection for private markets.

One way to get a head start is to work with Tablecloth. Our unique combination of software and services is specifically catered to help PE investors meet and exceed ESG goals. Clients who partner with us receive key benefits such as: 

• Comprehensive ESG data management solutions: Our easy-to-use data visualization tools and proven process empowers investors to centralize ESG efforts, simplify and scale the data collection process, and gain valuable insights for more agile decision-making.

• Streamlined ESG reporting: We help investors simplify the challenge of ESG reporting by harmonizing ESG data collection with your fund’s unique reporting frameworks, LP requests, and sustainability targets. 

• Guidance from subject matter experts: Tablecloth provides investors with strategic support on establishing robust data processes. Our team’s expertise is curated specifically to help investors successfully navigate the ESG data landscape. Such partnerships help PE investors streamline their ESG data collection efforts, which results in a strengthened approach to sustainable investing.

We believe that a good data partner provides a holistic view of your fund’s ESG performance, as well as guidance on how to take action on that information. Working with us helps eliminate the need for individual portfolio companies to bear the entire burden of high quality data collection. It also helps you create consistent data inputs across your investments to improve the overall reliability and comparability of the ESG metrics being tracked. 

Take the next step

Private equity investors need to strengthen and streamline their ESG data collection process to stay relevant in today’s market. Good data forms the foundation of a reliable, efficient, and impactful ESG integration strategy. To speed up the process, reach out to our team of ESG experts for access to an industry-leading process and platform, rich benchmarking data sets, and best-in-class privacy and data security infrastructure.