Fund Managers Should Leverage ESG Benchmark Data

As the PE/VC industry shifts toward more targeted sustainability goals, the demand for ESG data has grown. Transparency and accountability are at the foundation of the shift toward more responsible and sustainable investing. More investors are demanding that ESG investing processes and paradigms be implemented as they are inextricably linked to value — moral, ethical, and economic. And managers are starting to feel the pressure to prove their products and brands are ESG-aligned.

However, the industry is behind in standardizing data and creating benchmarks to identify ESG-aligned firms. While regulatory frameworks are likely to emerge over time, PE/VCs can get ahead of the curve by focusing on how to put ESG data to work now

Start with a Solid Data Strategy

No matter where firms concentrate their ESG data relationships, a properly data-supported investment strategy will allow institutional investors to leverage insights and meet their ESG goals. To keep up with the increasing pressure to adapt to ESG standards, firms can implement transparent, data-driven investment strategies that enable investors to make sense of and leverage data to meet their goals. 

While there is currently a lack of standardization surrounding the metrics to track and compare brands (as well as how to act upon the insights from that data), firms can get a jumpstart by defining a few core benchmarks within their data strategy:

  • Screening: During due diligence (and before), firms should be running an internal analysis based on predetermined data points to see if a company meets the internal expectations of ESG alignment. This analysis will help determine if a company meets the ESG goals of the firm. 

  • Knowing Risk and Performance Drivers at the Fund Level: To best measure performance, firms should have a clear understanding of their internal ESG goals and benchmarks to  track against and be ready to share them with investors asking for customized ESG reporting.

    For example, one investor may request reports relating specifically to gender equality guidelines, while another may be more focused on carbon emission risks. By having data sets and benchmarks to measure at the fund level, firms can quickly pull custom reports to gain investors’ trust (not to mention help them cut through any greenwashing concerns).

  • Portfolio Optimization: By leveraging a customizable, VC-specific data tool (like Altvia), firms can forecast industry changes and “what if” scenarios to best project potential portfolio risks and opportunities and better understand how they impact different ESG scores within their portfolios.

  • Reporting and Benchmarking: Having the right benchmarks and reports in place throughout the deal funnel helps investors see the big-picture look at how they’re aligning to, and progressing with, ESG goals over time.

    The right reports can reveal everything from the performance of each ESG pillar overtime to help fuel better decision-making when it comes to new opportunities and ensure each new deal brings the firm closer to achieving ESG-aligned goals.

Long-Term Leverage Lies in Unstructured Data

To leverage ESG benchmark data, the key is to look for the longer-term impacts telegraphed in unstructured data, which can take the market a while to assimilate because of inefficiencies in processing ESG information.

Instead of waiting for standardization in ESG reporting and compliance framework, fund managers can start gaining insights today from alternative data found in reports on verticals like climate change, natural disasters, and other public information. 

Partner to Stay Ahead

While unstructured, raw data can be difficult and time-consuming to weed through, PE/VC specific software makes it easier to analyze alternative data to stay ahead of the competition.  

From newspapers and social media feeds to satellite images and nonprofit research, ESG data is readily available. It’s up to firms to determine which information provides them value.

By partnering with a software provider like Altvia, firms can gain a competitive edge in generating fund-level reports for investors on ESG data that may not yet be available in the market. To see how a platform like Altvia can help your firm level up your ESG goals and reports, contact a member of our team today.

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like Salesforce.com have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that Salesforce.com has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that Salesforce.com — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.