Private Equity Law Report
Suz Mac Cormac spoke to Private Equity Law Report about the Institutional Limited Partners Association's (ILPA) Assessment Framework, which sets out four categories of environmental, social, and governance (ESG) integration activities and processes.
According to Suz, the Framework could benefit from additional details and definitions.
"I would have defined what 'qualitative' and 'quantitative' mean, as well as offered some guidance on what standards to apply and how to benchmark," Suz said. "In terms of portfolio companies, benchmarking is what has been missing to date in funds' ESG work. How a fund and its portfolio companies are doing on their KPIs compared to other funds and their portfolio companies is missing in most GP analysis."
In addition, lack of standardization in KPIs can lead to incomplete information. For example, a GP investing in renewable energy in Africa may be aware of and measuring the emissions reduction associated with renewable energy, but not be aware of the materials with which the renewable energy resource was built. "The portfolio company could be using carbon-sequestering cement," Suz suggested, which could boost the ESG quotient of the investment.
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