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    GSAM Insights

    PRIVATE EQUITY VALUE CREATION SERIES: SUSTAINABLE INVESTING TRENDS

    May 21, 2024  |  3 Minute Read 

    Carmen O'Shea

    Goldman Sachs Asset Management Value Accelerator Operating Advisor

    Carmen O'Shea

    Letitia Webster

    Global Head of Sustainability for Private Investing

    Letitia Webster

    Lori Buckingham

    Goldman Sachs Asset Management Value Accelerator Operating Advisor

    Lori Buckingham

    Sustainable investing continues to prove a complex and multi-faceted topic. The number of regulatory requirements aimed at corporations and investors is massive and growing, often resulting in reporting fatigue. Impact management and measurement is an area gaining more concrete focus. And while still relatively nascent, social impacts (the “S” in ESG) are beginning to be more clearly articulated and systematically included in company sustainability frameworks.

     

    The Goldman Sachs Value Accelerator (VA) and Sustainability experts work both internally and with numerous portfolio companies to inform decision-making on sustainability strategy, ESG reporting and impact measurement, and other factors as the landscape evolves.
     

     

    SUSTAINABILITY REPORTING

     

    European regulations continue to drive sustainability, climate, and financial disclosures, but the US has also begun to mandate reporting on sustainability factors at the national and in some cases state level. It is critical for companies to understand the mandatory disclosure requirements in their space and to evaluate streamlined data collection processes to address these mandates in a timely way. This is trickier than it seems, given varied reporting calendars, inconsistent metrics requirements, and differing communication expectations across regulations.

     

    Depending on where they are in their sustainability and impact journeys, companies tend to leverage different reporting approaches. Bigger companies may develop an in-house reporting team. Others opt to outsource the work to consultants. The challenge with dedicating so much resource to regulatory reporting is both the associated operational cost (time and financial capital) and opportunity cost. Given the reporting onus, companies may find themselves unable to accomplish essential sustainability management work such as decarbonization strategizing and DEI strategy building. While the intention to create transparency and incite action is laudable, it can lead to burnout just when the push for transformative work is most crucial.

     

     

    SUSTAINABILITY TOOLS AND SUPPORT

     

    What can help with the overload? For one, software tools. ESG data collection platforms such as Novata can support both quantitative and qualitative information collection, reporting and analysis. There are also tools for specific areas like greenhouse gas accounting (e.g. Watershed). It’s important for companies to decide on a data collection strategy, tool approach, and governance model as soon as feasible, given the proliferation of requests.

     

    Goldman Sachs VA and Sustainability and Impact teams work directly with companies to facilitate their sustainability journey. Our experts constantly scan the horizon to understand the regulatory landscape. In collaboration with legal and compliance colleagues, they interpret which aspects are necessary and most relevant for integration into fund mandates. They also streamline information for portfolio companies, distilling the most critical information for management teams, including which reporting frameworks are most common and most likely to meet their stakeholders’ needs.

     

    Given the importance of rigorous and verifiable ESG data, our experts also support portfolio companies with their data collection processes - establishing a baseline, onboarding reporting tools, and providing governance support. This oversight allows companies to increase their data maturity and to stay current on their reporting and regulatory requirements.

     

    Finally, the team helps portfolio companies determine which aspects of ESG are material to their business from an investor and stakeholder perspective. Employing a double materiality approach allows company leaders to gauge both what affects them from an environmental, social, and financial perspective and potential material impacts. These factors are then included in their data collection and reporting efforts.

     

     

    IMPACT MEASUREMENT

     

    Impact management and measurement is an increasing area of stakeholder focus. While agreement generally exists on the importance of measuring sustainability strategy impact, translation of these strategies into tangible metrics isn’t always straightforward. What do we see across our portfolio currently?

     

    Most of the companies view sustainability through a risk mitigation lens (e.g. identifying conflict minerals or labor migrant worker inequities in their supply chain). Many also tout operational efficiency as a positive outcome (e.g. reducing carbon as a waste stream to lower cost).

     

    Then there are emerging companies who leverage sustainability as an innovation filter. Several firms in our impact investing fund assess the carbon benefit of their products throughout theie lifecycle. Examples include emissions avoided compared to an incumbent product or resultant carbon sequestered. But this is an emerging practice for which consistent reporting standards have yet to be ironed out. For instance, the impacts and units measured can vary across companies. More crucially, there’s the sticky question of who gets to claim the benefits when reducing the footprint: is it the consumer, the manufacturer, the supplier, the investor? And how is this benefit articulated more broadly? We routinely collaborate with our climate solutions-oriented portfolio companies on these kinds of questions.

     

     

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