Now that investors are getting a regular flow of information on the environmental, social and governance progress of public companies, they’re clamoring for the same level of ESG data on their growing private market holdings.
That’s the impetus behind what BlackRock is calling ESG Outreach, which was developed by subsidiary eFront. BlackRock worked with a group of limited partners and funds of funds to standardize the reporting and analysis of ESG data. The system now is available to more than 2,500 general partners and the 70,000 private companies that eFront already collects financial information on.
“More and more over the last three to five years, we’ve seen a lot more transparency at the underlying asset level than there ever was before, which is what investors really want and need,” said Melissa Ferraz, head of eFront Insight. “Where we see the differentiator is that we’re bringing together these financial and non-financial disclosures in one place to make sense of it. Investors were saying, ‘It’s great to just get the ESG data, but if I can’t combine it with my performance data then I don’t really know what any of this means.’”
While private companies aren’t subject to the same disclosure rules as public ones, there is pressure on them to become more transparent. For one, the Securities and Exchange Commission has released proposals for private companies to disclose more information, including on risks posed to investors. Institutions have also been pushing for more data in an easily digestable format for years.
The goal for Efront Insight is to act as the central hub between institutions, private equity firms, and private companies for ESG data.
Ferraz stressed that initially investors and GPs will be establishing only baselines for a company’s water consumption, carbon footprint, or other factor. Over time, users will be able to see trends and BlackRock will create aggregate and anonymized benchmarks based on all the ESG data in its system. GPs and investors can use these benchmarks to determine how a particular company ranks compared to peers or to see how their buyout funds in North America, for example, compare to similar offerings.
The system is initially available for private equity and private credit funds, with BlackRock planning to extend the capability to other asset classes, including infrastructure and real estate. In addition, it will partner with Aladdin Climate, which will bring climate models into private markets. BlackRock introduced Aladdin Climate in late 2020, allowing portfolio managers to quantify the risks climate change posed to their portfolios.