To truly understand a company’s performance, investors, executives, and stakeholders must look beyond the financials. This wider lens on performance typically includes environmental, social, and governance (ESG) metrics that align with a company’s sustainability for growth and to manage risks, reduce operational costs, and steer corporate culture and brand reputation. It is easy to understand financial performance, but historically, it has been much harder to know what good looks like when it comes to sustainability metrics. This is especially true in the private markets, where data collection and transparency are not yet as easily available or robust as in the public markets.
At some point, a stakeholder will ask: how does the performance of [insert ESG metric here] compare to peers? The industry? Across the portfolio? That’s why identifying and collecting well-defined and relevant sustainability metrics and ESG benchmarks are so important to understanding ESG data performance.
Metrics on the Rise
Identifying the ESG metrics that matter is foundational to a firm’s ESG journey. Though the world of ESG standards, regulations, and frameworks may seem noisy, regulatory bodies and standard-setting organizations are driving towards metric convergence, which will eventually make performance measurement more accessible. As this industry evolves, tracking metrics and benchmark performance beyond compliance reporting will be critical to understand risks, capture efficiencies, and command higher valuations.
Novata’s metric library contains more than 2,400 ESG metrics aligned to industry frameworks, standards, and regulations. And, with over 150 GPs and more than 7,000 companies requesting and collecting data on these metrics, Novata can deliver insights into the most requested metrics by industry, by region, and across frameworks and regulations — as well as provide benchmarking and context for performance. The Novata Benchmark library includes more than 3,000 ESG benchmarks for the 2023 reporting period.
To see the top 15 metrics requested by GPs on the Novata platform across each environmental, social, and governance pillar as well as the top sustainability metrics overall, download our complimentary 2024 Novata ESG Metrics Guide.
A Growing Focus on Sustainability Governance
An initial step when building a sustainability strategy is to invest in the ESG policies that set the standard for your company. When asked about policy creation at their firms, 43.7% of companies reporting on Novata say they have an ESG policy. Other policies in place include an Environmental policy (45.9%), a DEI policy (68.7%), and a Diverse Recruiting policy (81.5%).
Companies are also investing in ESG leadership. More than 70% of companies reporting on the Novata platform have an ESG Executive Sponsor. 44% of companies report having a Head of ESG. Our data shows that Europe-based firms are leading the way with these hires — more than 63.8% of European companies report having a Head of ESG vs. 50% in 2022.
Firms Continue to Track Social Themes
In addition to DEI policies, Number of Women Board Members is a top requested metric on the Novata platform, along with Unadjusted Gender Pay Gap.
On average, companies reporting on the Novata platform have 6 board members. Nearly 50% of companies report 0 women on their board. Companies also report having an average of 6 C-suite employees, with 28.5% of those companies having no women on their executive teams. On average, companies reporting on the Novata platform have 1 woman in their C-suite. This is unchanged from 2022 averages.
49.6% of companies report having an Equitable Pay Policy, with North American and European companies at near parity. However, despite the percentage of European companies reporting having an Equitable Pay Policy decreasing from 58.8% (2022) to 50.8% (2023), the unadjusted gender wage gap improved YoY in that region. Comparing 2022 data to 2023 data, European unadjusted pay gap decreased from 18.1% to 15.8%, while the North American unadjusted pay gap increased from 18.7% to 19.0%.
Beyond DEI-specific metrics, companies and stakeholders are requesting data on broader social themes. When asked about these initiatives, 85.4% of companies report having a paid parental leave policy, 87.7% report having a flexible workplace policy, and 92.5% report having initiatives in place for employee development, retention, and attraction.
Environmental Metrics Gaining Momentum
Environmental metrics make up half of the top 10 requested metrics on the Novata platform. While there does seem to be increased momentum around this pillar, presumably driven by emerging regulation like CSRD and California’s Climate Accountability Package — both of which have a strong environmental focus — relatively few companies seem to be collecting/calculating this data (yet).
When asked if they are tracking GHG Emissions, 25.2% of companies reported yes, and when asked if they have a Net-zero target, 18.0% of companies reported yes. Less than a third of companies report having a carbon emissions reduction initiative.
Beyond the inability to respond to sustainability regulation, companies that are not yet focused on climate impacts may find themselves at a disadvantage as investors look for financial factors to maximize returns adjusted for risk. Understanding the cost, exposure, operational impacts, and long-term value of managing your carbon exposure, mitigating physical risks from severe weather, or transitioning to clean energy may help you command stronger financing and valuations.
Understand Performance with Novata Benchmarks
Between the company, GP, and LP, firms can use benchmarks to track policy creation, areas of investment, and opportunities for operational efficiencies across peer groups. Selecting the right ESG metrics and being able to easily compare performance to the market or a sector gives you clear insights into where you might under- or over-perform relative to your sustainability strategy — these are important data points that drive fundraising and value creation.
Novata Benchmarks for the 2023 reporting period include 165 universal benchmarks, more than 1,000 benchmarks across all 11 Sustainable Industry Classification System (SICS) sectors, and 1,600 sub-sector benchmarks. The Novata Benchmark library also includes normalized benchmarks by FTE and GP benchmarks broken down by strategy, AUM, and geography. Data used in the Novata Benchmarks is actual reported data from Novata contributors, de-identified and aggregated, and specific to the private markets.
Learn more about Novata Benchmarks.
Novata Benchmarks (the “Benchmarks”) are intended for informational purposes only and are neither intended nor implied to be a substitute for professional advice. The Benchmarks represent industry averages and do not represent the specific performance of any individual company, fund, product, or service. Read the full disclaimer.
