Calpers, CPPIB in ESG data push for US$4T

Investors overseeing more than US$4 trillion are banding together to standardize data on environmental, social and governance performance of portfolio companies, in an effort led by the largest pension and one of the largest private-equity funds in the U.S.

The California Public Employees’ Retirement System and Carlyle Group Inc. helped rally a group of more than a dozen investors to share and privately aggregate information related to emissions, diversity and the treatment of employees across closely held companies. More firms and institutions are expected to join.

Blackstone Group Inc. and the Canada Pension Plan Investment Board, the country’s largest pension fund, are also part of the effort. Boston Consulting Group was tapped to aggregate the data.

“We need to start a common language across all these participants so we can actually, in a sustained way, make some progress,” Carlyle chief executive Kewsong Lee said. “By honing in on a set of common standards and common metrics, we start to standardize the conversations so we can really track progress. It’s really hard to do that right now.”

Private-equity firms will be seeking to standardize and share data on greenhouse-gas emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement. Calpers CEO Marcie Frost said she would like to see these metrics expand to include data such as C-suite diversity and employee satisfaction.

Frost said one goal is to see how this information contributes to financial performance of fund managers.

“Private equity has been the highest performer for Calpers, but these are private companies,” Frost said in an interview. “Even if you are a private company, limited partners do need some transparency into how these companies are managed.”

The push could guide how investment dollars are allocated. Currently, investors must ask their money managers track such data. Carlyle’s Megan Starr said that in a one-month span, her firm received more than 40 such requests for information, each asking for different sustainability metrics.

“We cannot listen to another panel on why ESG data is broken,” said Starr, Carlyle’s global head of impact. “We keep talking about the challenges, but we need to start talking about the solutions.”

Carlyle and Calpers began the discussions in January, and the group plans to meet every year. Other firms joining the effort are Bridgepoint Group PLC, CVC, EQT AB, Permira, Towerbrook Capital Partners, Alpinvest Partners, APG, Employees’ Retirement System of Rhode Island, PSP Investments, Pictet Group, PGGM and Wellcome Trust.

“We’ll start seeing meaningful results, or meaningful outputs, at the five year mark,” Frost said. “We’re in the very early innings of this, this is the first step to start collecting the data.”