.png)
In the complex world of private equity, the relationship between Limited Partners (LPs), General Partners (GPs), and portfolio companies is akin to a three-way tug of war—each party pulling in a slightly different direction, especially when it comes to measuring sustainability and social impact. The need for consistent, meaningful measurement has become both urgent and contentious.
Each actor in the triangle has unique motivations. There are tensions that arise in harmonizing sustainability data. How can the industry move toward a more aligned, impactful future?
The Diverging Purposes of Measurement
Limited Partners (LPs): Reporting and Transparency
LPs—typically institutional investors like pension funds, endowments, or sovereign wealth funds—are under mounting pressure from their stakeholders to disclose the sustainability and social impact performance of their capital allocations. Their focus is on:
- Standardized reporting across investment vehicles.
- Benchmarking against peers and global frameworks.
- Compliance with regulatory and voluntary disclosure regimes (e.g., SFDR, TCFD).
For LPs, the emphasis is on comparability and aggregation—they want to see how their investments stack up across managers, sectors, and geographies.
General Partners (GPs): Strategy and Differentiation
GPs are the stewards of capital and the bridge between LPs and companies. They see impact measurement both as a compliance obligation and a potential strategic differentiator. GPs care about:
- Meeting LP expectations while maintaining operational efficiency.
- Differentiating themselves in fundraising through superior sustainability strategies.
- Managing reputational risk and enhancing portfolio value.
For GPs, the challenge lies in translating a wide array of LP reporting requirements into actionable insights at the portfolio level, without overwhelming the companies they manage.
Portfolio Companies: Operational Relevance and Value Creation
Portfolio companies, often mid-market and growth-stage businesses, are focused on execution and results. For them, impact data collection can feel burdensome unless:
- It is tied to business value (e.g., reducing risk, improving retention).
- It reflects operational realities and material topics.
- It provides clear incentives or strategic advantages.
They need impact measurement to be practical and relevant, not an abstract reporting exercise imposed from above.
The Central Tension: Material vs. Standardized
At the heart of the challenge is a paradox: LPs demand standardized metrics to roll up impact across diverse portfolios, while portfolio companies need material metrics tailored to their business models and contexts.
This creates a few recurring tensions:
- Overgeneralization vs. Underrepresentation: Standardized KPIs may overlook what’s truly material to a given company (e.g., mental health in a healthcare provider vs. carbon emissions in a logistics firm).
- Survey Fatigue and Data Gaps: Companies may be asked to report on dozens of indicators that don’t apply to them, leading to resistance, incomplete data, or superficial compliance.
- Lost in Translation: GPs must interpret and translate LP reporting frameworks (GRESB, IRIS+, SDGs, etc.) into actionable systems that don’t disrupt company operations.
The Question Everyone Avoids: Who Pays for Measurement?
As sustainability data becomes more central to private equity strategy, another critical issue emerges: who bears the cost of measurement?
This is one of the most under-addressed yet foundational tensions in the LP-GP-portfolio company triangle. While all parties recognize the importance of material impact measurement, few agree on how to split the bill.
LPs Expect Results
LPs often see sustainability and impact reporting as table stakes. They expect GPs to deliver high-quality, comparable data as part of their fiduciary responsibility—without necessarily allocating additional capital for the systems, tools, or people required to do it well.
GPs Are Caught in the Middle
GPs absorb much of the pressure, trying to meet rising LP expectations while managing lean operational budgets. They often cobble together a mix of consultants, technology vendors, and internal resources, but this patchwork approach can be costly and inefficient—especially across diverse portfolios.
Some GPs pass the burden downstream, asking portfolio companies to foot the bill for surveys, audits, or software platforms. Others bake costs into fund-level management fees, but face pushback if those fees rise too quickly.
Portfolio Companies Push Back
For portfolio companies, especially those in early or mid-growth stages, the task of producing non-financial data—often in formats that feel foreign or irrelevant—can feel like an unfunded mandate. Without a clear ROI or incentive structure, these companies may deprioritize data collection or under-resource it, putting the entire measurement system at risk.
Toward a Harmonized Framework
To resolve these tensions—including who pays—the industry needs a more nuanced, collaborative approach to impact measurement:
1. Tiered Reporting Structures
A multi-layered approach allows for both granularity and aggregation. For example:
- Core metrics: A handful of universal indicators across all companies (e.g., employee turnover, energy use).
- Sector-specific metrics: Tailored KPIs based on the industry’s material issues.
- Company-defined metrics: Custom indicators tied to strategic goals or local impact.
2. Interoperability, Not Uniformity
Instead of rigid standardization, the goal should be interoperable frameworks—systems that map different KPIs onto common themes or outcomes (e.g., mapping a company’s own DEI metrics to an LP’s gender equity benchmarks).
3. Technology-Enabled Alignment
Digital tools and platforms can reduce friction in data collection, automate roll-up and mapping, and support real-time dashboards. This empowers companies to own their data while meeting GP and LP needs.
4. Shared Cost Models and Incentives
There’s a strong case for LPs and GPs to co-invest in the infrastructure of measurement. This might include:
- Dedicated impact budgets within funds.
- Shared licensing for measurement platforms.
- Incentives or carve-outs for sustainability data collection as part of value creation plans.
Investing in quality data is not just a compliance exercise—it’s a pathway to resilience, differentiation, and long-term value.
Conclusion: Co-Creation is Key
The LP-GP-portfolio company triangle need not be a battleground. Instead, it can be a collaborative ecosystem where impact measurement is co-created, not imposed. By aligning on purpose, recognizing constraints, and investing in tools and processes that serve all sides, private equity can become a powerful engine for sustainable, inclusive growth.
As the industry matures, the next frontier is not just what we measure, but how we align across the capital stack to make it meaningful—and equitable.
