On Tuesday, eFront ventured outside its normal suite of financial reporting products, unveiling a new tool designed to help GPs gather ESG information from portfolio companies and report it to investors.
ESG reporting has become a source of tension in the LP-GP relationship. Investors are increasingly demanding to hear about firms’ ESG efforts, but lack any standard practices to facilitate communication, leaving GPs inundated with ad-hoc ESG reporting requests.
A number of GPs have already started trying to pre-empt this flood of questionnaires by producing their own ESG disclosure statements, which they distribute to investors during the fundraising process. But in practice LPs suggested they treated these DDQs – even the ones they produce themselves – merely as a starting point for a deeper dive into the weeds of the portfolio.
In a recent comment letter, pfm noted that LPs are increasingly using informal communication channels like email and telephone to learn about GPs’ responsible investment work, but are hungry for a more standardized approach.
Aware of the market need, eFront utilized its business relationship with Swen Capital Partners, a Paris-based private equity firm known for its strong ESG reporting practices, to build “FrontESG.”
FrontESG offers a built-in library of ESG questions and indicators, allowing LPs and GPs to build customized information requests through a shared system. “This approach allows LPs and GPs to adapt their information requests according to their own ESG policies,” eFront said in a statement.
The industry’s quest for more formalized ESG reporting has made strides in 2015. In February, the UN-supported Principles for Responsible Investment (PRI) put out a call for LPs and GPs to join a new working group tasked with developing an ESG due diligence questions for LPs to ask GPs pre-investment.
Keen to hear more about the direction of ESG reporting? If so, catch the PEI Responsible Investment Forum next week in London.