Sustainability tech company Clarity AI has begun providing analytics to private equity investors to meet growing demand for ESG data and analysis from the alternative finance sector.
The New York-based company will leverage its sustainability data on about 30,000 firms to create sustainability benchmarks for use by private investors on BlackRock’s eFront platform.
Clarity AI has built algorithms and analytical tools that assess companies on a wide range of metrics. Currently, the 14 most relevant metrics for private investors are integrated into eFront’s broader databases, including greenhouse gas emissions, water usage, waste and a range of social factors including board diversity and pay policies.
The product is aimed at helping private equity managers better assess their portfolios at a time when investment from the sector is soaring. About 15 per cent of privately invested money in Europe, for instance, was committed to ESG-linked instruments in 2020, from 11 per cent in 2015, according to professional services giant PwC. That’s expected to rise to between 27 per cent and 42 per cent by 2025 and represent about $1.5 trillion. Alternative assets data firm Prequin estimates global ESG assets under management of private equity managers is about $2.4tn.
Behind the Data
Clarity AI vice president of product Angel Agudo says the new data service will provide much-needed insight into how investors’ portfolios align with their peers.
“We go beyond the data and behind the ratings,” Agudo tells ESG Insight. “Clarity AI provides the capability to very quickly understand what are the ‘goods’ and the ‘bads’ of the companies, enabling clients to position themselves so they know whether to engage with a company or omit it from their portfolio.”
BlackRock’s eFront provides an end-to-end alternative investment management platform, which has more than 850 users.
The 14 metrics on which Clarity AI makes its assessments were selected to suit eFront’s customers and represent a small ****percentage of the company’s analytical arsenal, which can actually make calculations across about 1,000 parameters. That offers scope for growth of the service, Agudo says.
Clarity AI will provide an estimation overlay to fill any gaps in the data record and Agudo ****says the company strictly ensures that an accurately derived value is available for all data fields.
“It is essential that our benchmarks compare like-for-like data points,” he says. “If the source of the data is not of good enough quality, then all the comparisons that you do later might be wrong.”
Since its creation in 2017 Clarity AI has become a leading name in sustainability data and analytics, providing risk, impact, and compliance tools to companies including Deloitte, Invesco and Aviva.
Providing ESG data for private investors is subject to the same challenges faced by all financial institutions; gaps in corporate sustainability records, disclosures aligned to a variety of standards, and so on.
But it also differs from that tailored to larger investment houses in several nuanced ways. Often the datasets are richer because private equity investors have a closer relationship with the companies they want to finance, said Agudo. They tend to engage more closely than might be the case for investors in public companies. That’s chiefly because private investors often look for acquisitions or investments that they can later list on an exchange, where they will face deep scrutiny.
Those datasets may be more limited in scope, however, because private companies tend to be smaller and have a more localised impact, physically and socially. Private investors, therefore don’t always require as broad a range of gauges.
“What we see coming from private investors they tend to have a good relationship with the companies that they invest in – what ends up being difficult for them is establishing what that data means,” he says. “That’s where we step in, to help them make sense of the data.”
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