Often it’s difficult to make calls about a full portfolio’s ESG performance because different measurement strategies and frameworks mean you cannot easily gather, maintain, or analyse environmental, social, and governance (ESG) data across different portfolio companies.
The issue with measuring ESG data is standardisation. Because the sources for ESG data and the ways to organise it vary, it may take decades for some form of a universal ESG measurement standard to take hold. And even then, it could still be a work in progress.
Yet if you want to analyse risk and growth accurately, consistency is crucial and with so much differentiation in the current market, when just the opposite is needed, ESG software has an important role to play.
Just as no two companies are alike, even in the same sector, it’s often the case that no two frameworks are alike. But ESG done right can’t be a vague guessing game. Getting the data points between data frameworks to align is an obvious goal. But there are good reasons why the starting points are different.
It’s important to recognise these challenges. It explains why companies across the same sector, or even one company from year to year, may present numbers that lack the standardisation you want. And things get trickier when the data you get is vague, biased, or inconsistent. Now what?
The science of smart portfolio management comes with a lot of numbers-based jargon and acronyms: alpha, delta, ROI, EPS. It’s all about minimising risk and maximising value. But when you can’t compare data easily across your portfolio to assess value or risk, you can’t accurately assess ESG performance across a portfolio. Unfortunately, it also means you can’t:
Fortunately, there’s a way out of this before it becomes a mess.
You can standardise the reporting and disclosure methods of the companies across your portfolio by selecting one ESG framework for all companies to use. This will allow you to have consistent ESG metrics that you can feel confident making decisions from.
It may sound like a challenging task. But getting there is more than possible with the right resources. For starters, Rio offers a simple guide that explains how to pick the right ESG disclosure framework for your organisation or investment due diligence.
If you are unsure where to start, we also highly recommend the World Economic Forum, “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.” It condenses guidelines from 120 of the world’s largest companies into a core set of common metrics and disclosures for investors and other stakeholders.
In terms of a stricter financial focus, the Sustainability Accounting Standards Board (SASB) was designed to help companies communicate sustainability data to investors specifically. In June, it merged with the International Integrated Reporting Council to form the new Value Reporting Foundation (VRF), which has created an Integrated Reporting Framework.
And the Task Force on Climate-Related Financial Disclosures (TCFD) helps organisations more effectively disclose climate-related risks and opportunities. That leads to better risk assessment, capital allocation, and strategic planning. You can read our recent blog about TCFD to learn everything you need to know about reporting.
When ESG data sits in different silos, without a guiding framework, it’s a recipe for disorganisation, frustration, and mistakes. Software can streamline your ESG data collection because it provides a central place to store qualitative and quantitative data—and applies a single framework to make sense of it all.
Through a software solution, private equity firms can stay on top of their ESG investments. Portfolio businesses can also report their own info in an easier way—and comply with your requirements. You can also:
Rio can help make your data collection easy and efficient. Think about the 'must-haves' that make for best-in-class ESG due diligence. Streamlined workflows, built-in ESG framework requirements, real-time data visualisation, and easy data management are all essential.
Rio makes all this possible and more. We also connect the dots between data collection and reporting. That makes it easy to share this information with your stakeholders. And it ensures that your entire portfolio gets you the information you need. Now it's consistent. It's comparable. It continues to grow your investments.
How else can Rio help you? Get in touch below to chat with one of our team members.