Breaking Down the 2024 PitchBook Sustainability Report: What Private Investors Need to Know

The 2024 PitchBook Sustainability Report highlights the complex landscape of ESG (Environmental, Social, and Governance) and impact investing within private markets. The survey, packed with data and analysis, exposes the challenges and opportunities faced by both GPs and LPs. At Tablecloth, we focused on the key data points and insights to provide actionable takeaways for our clients and partners in the private equity space.

Below, we break down the challenges and trends highlighted by the survey, focusing on the measurement, reporting, and definitional inconsistencies to provide actionable takeaways for our clients and partners in the private markets space.

Data-Driven Challenges in ESG

Perhaps the biggest takeaway from this year's PitchBook report is the persistent difficulty in measuring ESG and impact outcomes. Unsurprisingly, the report highlights that ESG-related challenges are often rooted in data. 

Practitioners consistently point to difficulties in understanding, gathering, and effectively utilizing ESG data across their portfolios. Here are the top challenges, as revealed by the survey:

• 39% of respondents noted that the understanding of what ESG means varies widely, creating barriers to consistent implementation.
• 37% struggle to gather ESG data from portfolio companies, a key pain point that complicates both internal reporting and external disclosures.
• 37% find it difficult to determine the effectiveness of ESG efforts due to the lack of available market data, hindering benchmarking and performance measurement.

These insights underscore the persistent issues of standardization and clarity, both of which make it difficult to compare ESG outcomes across companies and industries. As many practitioners continue to tailor ESG frameworks to fit their specific needs, this lack of uniformity makes effective benchmarking challenging.

Measuring Impact

Like with ESG similar challenges arise in the realm of impact investing. The survey data revealed that understanding what “impact” means—and how to measure it—remains a point of contention:

• 46% of respondents reported varying understandings of what constitutes impact investing, complicating efforts to develop a standardized approach.
• 38% pointed to a lack of clarity in what to measure, making comparability across investments difficult.
• 37% cited challenges in comparing impact outcomes due to a lack of common definitions.

Perhaps most strikingly, 42% of impact investors admitted that they do not measure the impact of their investments at all. This figure highlights the ongoing struggle within the industry to move beyond rhetoric and establish measurable, comparable results.

Defining ESG and Impact

The lack of a universal understanding of these concepts creates confusion about what to measure and how to benchmark it. The wide range of standards and frameworks currently in use only compounds the issue, making it difficult for investors to compare data across companies and sectors.

While some are searching for a “holy grail” of universally accepted metrics, it’s increasingly clear that such a solution may be elusive. Still, firms need to focus on gathering robust data and improving transparency, even as the industry grapples with these challenges.

Custom Models Rule the Day

The report also sheds light on the growing trend of custom ESG and impact measurement models. While many firms base their metrics on established frameworks, they often modify these systems to align with their specific investment strategies. This customization, while beneficial for tailoring ESG and impact initiatives, further adds to the challenge of standardization. Each fund’s unique approach makes it difficult to benchmark against industry peers.

This aligns with what we often see: PE firms want to differentiate themselves, and they see their measurement strategies as an extension of their value proposition. And, let’s face it: there is no one framework that fits all cases. 

Disconnect Between LPs and GPs

One of the report's more intriguing findings is the disconnect between LPs and GPs regarding their respective appetites for ESG. LPs underestimate how much GPs are embracing ESG, while GPs underestimate LP interest in ESG and impact investing. What weirder still is that in spite of mutually negative assumptions of each other, both LPs and GPs are buoyant about ESG. 

The bottom line? LPs are more willing to hear the ESG and impact pitch than GPs may think, while both sides are increasingly incorporating these factors into their decision-making.

ESG and Impact: Persistent Perception Issues

Even though 79% of asset managers incorporate ESG and impact factors into their decision-making, there remains a persistent issue with the label “ESG.” Some investors view ESG as “vanity,” preferring to categorize their risk assessment under different labels. This disconnect between actual practices and public perception suggests that the term "ESG" itself may need rebranding to avoid political and social backlash.

Overcoming ESG & Impact Data Challenges

The 2024 PitchBook Sustainability Report reinforces what we at Tablecloth have long known: data-related challenges are at the heart of ESG and impact investing struggles. Whether it’s the difficulty of collecting data from portfolio companies, the lack of clear definitions, or the complexities of benchmarking, the private equity industry still has work to do.

At Tablecloth, we make the process easier by helping you navigate these complexities. Our platform allows you to gather, report, and analyze ESG and impact data efficiently, turning insights into action. Ready to simplify your reporting and ensure your investments align with your values? Reach out to us for a demo.