Over the last several weeks, I’ve been talking a lot about the various sources you can use to aggregate data when managing and maintaining an ESG-focused portfolio.
But sometimes, there is a lack of data, and what do you do then?
This is particularly true with instrument-level ESG data, which tends to be scarcer than company-level ESG data. And it’s true of private equity ESG data, too.
Even so, by using a number of mechanisms, it is possible to compile a lot of data from multiple sources to help support the KPIs you’ve identified for a given portfolio. When you lack data about an instrument, you can try to proxy it from the issuer. If you don’t have data on the issuer, you proxy it from its parent, or its ultimate parent. And you can also check benchmark data to obtain a reading on a certain ESG factor such as climate risk, labor rights, or an employee health & safety issue.
But even if after all of that, you still don’t feel you have enough data to meet a certain threshold, you can’t simply say, “I can’t aggregate.” Some kind of portfolio view is still necessary, so it’s essential to keep an audit trail of the information you have at hand, including when and from where it was obtained.
So, for each KPI you aggregate, there are three things to consider, which are whether it can be verified, proxied, or found at all. There will be instances where you need to acknowledge that you don’t have data, in which case, you need to qualify your aggregate result by providing the percentage of the investment data that is unknown.
If then, the breakdown of the KPI is, say, 85% genuine data, 4% proxied, and the rest unknown, it still has quite high reliability. You can, of course, determine whatever threshold for genuine data is acceptable given the desired KPIs of the portfolio. As you continue to publish these aggregate metrics, they should improve steadily over time as you amass more insights as data become more available.
A complete picture may not be possible always, but you can still make use of whatever data is available with the right framing in place – the metrics for the metrics – to make it as meaningful and relevant as possible.