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Alternative Market Briefing

Other Voices: Show me the data: investors demand better ESG disclosures

Wednesday, May 22, 2019

By Jessie M. Gabriel and Lauren T. Attard of BakerHostetler

Asset managers are always looking for a valuation edge. But even when key factors are identified, the data may not be available. This is particularly true with environmental, social and governance (ESG) issues. No one will dispute their relevance, but few are able to reliably quantify their impact. That may soon change.

Bad Data

The value of ESG data is well understood. As early as 2016, BlackRock put out a white paper characterizing this information as "integral to our investment stewardship" of its more than $6 trillion in AUM. Since then, it's been hard to find an asset management conference without a dedicated ESG panel discussing how important these values are to LPs and, as a result, to the GPs handling their assets.

The problem is the data. The ESG category is broad - it includes data such as a company's impact on the environment, its relationships with employees and suppliers, and its views on diversity, executive pay and shareholder rights. For ESG data to be useful, it must be specific, reliable and consistently provided. For the most part, disclosure has been limited and voluntary, predominantly through the Global Reporting Initiative. Studies have identified problems with the reliability of the data, such as issuers not gathering data systematically or cherry-picking data to report.

The Proposal

Various stakeholders have made efforts to systematize reporting ESG data ......................

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