The ESG Data Convergence Initiative (‘EDCI’ or the ‘Initiative’) offers a standardized set of ESG metrics for comparative reporting intended to benefit stakeholders in the private markets. EDCI was launched in September 2021 and now counts over 325 members: approximately 221 general partners, and 104 limited partners and investment managers, all of whom manage a total of around $27 trillion in assets.
Addressing the mounting volumes of ESG data
The Initiative was established by founding members, CalPERS and Carlyle, to address two main problems. First, investors’ need for comparable ESG data across the private equity industry. Secondly, a lack of standardized ESG metrics collected by general partners.
With an increasing number of sustainability reporting frameworks (CSRD, SFDR, TCFD, CDP, ISSB, UNPRI), general partners have the unenviable task of assessing which of the associated ESG metrics should be collected across their portfolios. The variation in data collection and reporting across PE firms and lack of consensus in the industry also creates difficulties for limited partners to evaluate relative ESG performance.
The purpose for the development of EDCI was to drill down through the mountain of ESG metrics and to select those that are most relevant to the PE industry. In this way, the Initiative arrived at a much more simplified list of metrics that are nevertheless informed by pre-existing and globally-accepted frameworks, including GRI, SASB, TCFD and SFDR.
Ultimately, the goal of the Initiative is to reach a critical mass of PE firms who collect and report on meaningful, standardized ESG data.
The ESG metrics collected during the 2023 reporting cycle are listed below. These are grouped into six core categories. The EDCI Steering Committee, which comprises member GPs and LPs, reviews these metrics annually for relevancy and provides updates for the next reporting cycle.
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EDCI follows these guiding principles when developing its metrics:
- Globally accepted: Selected from the most accepted and widely regarded frameworks; including GRI/WEF, SASB, and TCFD (and EU SFDR as formalized).
- Meaningful: From a financial or societal impact perspective; may be specific to a given industry.
- Comparable: Allowing performance comparisons between portfolio companies and GPs; adequate overlap exists across sectors.
- Dynamic: Evolving metrics as tracking improves and understanding and materiality evolves.
- Straightforward: Simple to track accurately, with limited total number of metrics to not overburden companies and ensure data quality and integrity.
- Actionable: Tied to specific actions under GPs and portfolio companies’ control.
- Objective: Metrics should minimize subjectivity or need for interpretation.
Boston Consulting Group (BCG) is the technical advisor to EDCI. BCG played a pivotal role in EDCI’s establishment and has been named its long-term benchmarking and advisory partner for an initial three-year term.
BCG’s wholly owned subsidiary, BCG Expand, serves as the third-party aggregator of anonymized data reported by EDCI members. BCG Expand develops benchmarks using this anonymized data, which is made available only to EDCI members, enabling comparisons against peers across verticals, such as industries and investment strategies. For instance, growth equity funds can gauge their performance with respect to Scope 1, 2, and 3 emissions, workforce diversity, and more against peers.
Pulsora supports EDCI benchmarking information directly in our platform, as shown below.
What’s new for 2024
The EDCI has announced a number of substantive updates to its reporting framework for 2024. Most critically, the EDCI has:
- added a new Net Zero Commitment metric
- updated its metrics reporting guidance;
- revised the data submission template and
- added new funcationality to its portco benchmark.
New net zero commitment metric
Earlier this year, EDCI announced the addition of a new metric, bringing the total number of metrics from 15 to 18. This new “Net Zero Commitment” metric includes the following questions:
- Does this portco have a decarbonization strategy / plan in place?
- Does this portco have a short-term (i.e. 5 – 10 years) GHG emissions reduction target in place?
- Does this portco have a long-term net zero goal?
Metric development at EDCI is overseen by the Initiative’s Steering Committee, which comprises certain member GPs and LPs. The Steering Committee reviews the set of metrics annually for relevancy and provides updates to metrics and metric guidance for the next reporting period.
The addition of the Net Zero Commitment metric was made in consultation with outside organizations, the Initiative Climat International (iCI) and the Institutional Investors Group on Climate Change (IIGCC).
The iCI is a global, practitioner-led group of private markets firms that works to support awareness of climate change risks among its more than 200 members. The iCI is hosted and supported by the UN-backed Principles for Responsible Investment. The IIGCC is an industry group of over 400 members that works to address climate issues associated with institutional investment. The IIGCC has co-founded and supported initiatives such as Climate Action 100+, the Net Zero Asset Managers initiative, Paris Aligned Asset Owners group and Nature Action 100.
Both the IIGCC and iCI have released their own guidance on how to align with the Paris Agreement through net zero commitments. As a result, the EDCI suggests that “any private equity fund engaging with either the IIGCC or iCI frameworks will find they have the full set of information they need for the EDCI net zero metric.”
Updated metrics reporting guidance
EDCI also released revised 2024 reporting guidance based on feedback from EDCI participants. The updated guidance includes information on the new Net Zero Commitment metric, detailed definitions for all EDCI metrics, guidance for calculating GHG emissions, and recommendations for maintaining data quality and integrity.
For 2024, the reporting deadline for participating members is April 30, 2024.
Revised data submission template
The updated EDCI Excel data submissions template includes tabs specifically designed to automate aspects of the data validation process. EDCI has designed these new updates with a view to saving members time and enhancing the GP experience.
The revised data submission template now has 17 tabs of which seven address data input and validation. The remaining 10 tabs include metrics guidance and glossary information that is also found in the metrics reporting guide. EDCI members that engage one of EDCI’s participating technology platform partners may push their data directly to the Initiative without having to use this Excel template.
The data submission guidance was updated with feedback from EDCI participants as well as from EDCI’s third party data validation and aggregation partner, BCG Expand.
Snapshot of the EDCI Data Submission Template for the 2024 Reporting Period
EDCI has also announced the release of its 2023 benchmark. The benchmark now includes ESG data from almost 4,300 portcos of participating GPs. As a result, the benchmark covers all 11 SICS (Sustainability Industrial Classification System) sectors and 75 different industries.
GPs and LPs looking to access certain EDCI benchmarking data for 2023 will need to enter into a license with EDCI, moving away from the current EDCI model which is to provide all of this information to members at no cost. Nevertheless, with the increased cost of this service, EDCI had added the following functionality:
- A heatmap for GPs to visualize portcos against tailored benchmarks
- More granular benchmarks by dimension (e.g. region, sector)
- Flexible visualizations on trending analyses
- Visualizations of benchmark for specific use cases, e.g. due diligence
In addition, EDCI members who use one of EDCI’s participating technology platforms, such as Pulsora, will be able to view the benchmark directly within that technology platform. Pulsora is currently working directly with EDCI to enable this functionality.
Streamline EDCI reporting
Pulsora is an integrated, comprehensive, and flexible cloud-based platform to help companies define, capture, and improve relevant sustainability metrics to exceed stakeholder expectations. Our solution is specifically designed to facilitate compliance with frameworks like EDCI and many others.
The following features of Pulsora are critical to supporting companies on their journey to EDCI reporting:
- Assurance/Audit Capabilities: Designed for audit and assurance with a powerful workflow engine and ability to attach evidence allows for easy audit and assurance.
- User Customizability: Built for the dynamic ESG landscape. Intuitive user interface coupled with extensible data model caters to shifting stakeholder requirements.
- Trusted System of Record/Reference: Single point of visibility for all sustainability metrics across the value chain, built-in analytics, data validation rules, benchmarking, and performance tracking against goals.
For more information on EDCI, watch our on-demand webinar with EDCI partners, Ben Morley of BCG and Ben Baxter of BCG Expand.
To set up a configured demo with Pulsora, please go to pulsora.com/demo.