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Imagine you've only had success up to this point. Decades of innovation and growth helped your company stay on top of market demands. Your team is experienced, operations don't bump into too many hurdles, and you’re a recognized leader in your field.
But then a new challenge arises: New regulatory requirements ask you to disclose new types of ESG data, a lot of which you've never even tracked in the first place. These disclosures now go beyond environmental reporting or governance metrics, covering a larger array of ESG criteria, including diversity, equity, inclusion data, supply chain transparency, and more.
Suddenly, you have to pause everything to work on your strategy for ESG data management. The costs add up and you could be losing momentum in a competitive market.
This scenario illustrates why using a structured framework can be of tremendous help when navigating ESG compliance and reporting. And this is where ESG Data Convergence Initiative (EDCI) becomes particularly relevant.
In this guide, we're showing why you need EDCI and what you need to do to check all the boxes of the framework's recommendations.
What is the ESG Data Convergence Initiative (EDCI)?
The ESG Data Convergence Initiative (EDCI) is a standardized framework developed in 2021 to improve and streamline the reporting of Environmental, Social, and Governance (ESG) data, particularly within the private equity sector. Organizations can now use EDCI to tackle the challenges brought by inconsistent ESG metrics.
The EDCI focuses on areas like greenhouse gas emissions, diversity, and governance practices, allowing participants to anonymously benchmark their data against the industry. Unlike broad, legally binding ESG frameworks like the European Union’s Corporate Sustainability Reporting Directive (CSRD) which require disclosure across large corporations and financial entities, the EDCI is a collaborative initiative tailored to private equity.
It’s designed to benefit a wide range of organizations across various sectors. Remember that compliance with EDCI isn’t binding. Instead, it acts as a tool that can help a company adhere to industry standards and stakeholder demands in terms of responsible investing and business expansion.
What are the goals of EDCI?
The ESG Data Convergence Initiative has prioritized a couple of core objectives as part of its vision for the future. In short:
They want to create a set of standard ESG metrics all private companies can rely on
A single set of performance-based ESG metrics brings more consistency and less confusion for both organizations and investors. Added to this is a standard format for reporting on these metrics. Both should help investors better compare ESG performance across different portfolio companies and funds.
They want to support data benchmarking to help companies improve their performance
Any company that opts to do EDCI reporting can add its anonymized ESG data to a centralized database. In turn, they’ll be able to compare their performance against peers and see if they’re behind industry standards. This process will also help with boosting transparency for both investors and portfolio companies.
They want leaders to make better ESG decisions
With easier access to aggregate data, company leaders and stakeholders will now be able to work with consistent and reliable ESG data. This makes for improved decisions and can even encourage investments in organizations that closely follow ESG best practices.
What are the EDCI metrics to report?
The EDCI takes metrics seriously as they rely on their standardization to define their own framework. Here’s an extensive list of EDCI metrics you’ll need to report on:
You can consult the complete EDCI Metrics Guidance material to see all of them, clarify what falls under each metric, and receive more guidance on how to handle them.
Who are the current EDCI members?
The ESG Data Convergence Initiative has over 450 members including General Partners (GPs) and Limited Partners (LPs) across the private investment sector. These members contribute ~$38 trillion in Assets Under Management (AUM) and manage over 6,200 portfolio companies whose data is added to the benchmarks.
Some of the most notable EDCI partners include The Carlyle Group, Blackstone Group, Apollo Global Management, TPG, Kohlberg Kravis Roberts & Co. (KKR), Bain Capital, CVC Capital Partners.
The EDCI is always open to accepting new private investors as long as they share a common vision and are willing to collaborate for the shared goal of creating a standard approach to ESG reporting.
EDCI reporting benefits
The ESG Data Convergence Initiative brings its own set of reporting benefits thanks to the uniform approach companies and investors can take when it comes to ESG data collection, analysis, and disclosure. EDCI reporting benefits include:
A standardized list of metrics and reporting practices
The EDCI’s main mission remains to set a clear list of metrics organizations need to track and report on. To take things one step further, the ESG Data Convergence Initiative also provides a systematic way of reporting on ESG performance.
The reason why the initiative opted for this goal in the first place is that it’s one of the few tools in the sustainability space that lets companies and investors compare their ESG efforts across different companies and sectors.
A transparent look into where the market is going
Firms can use the EDCI framework to ensure they stay transparent in their ESG practices (and beyond). You’ll need transparency to build trust with stakeholders, keep up with regulatory demands, and stay attractive to consumers who are looking to purchase from sustainable businesses.
An easier way to make decisions
In the past, you'd have to use fragmented or inconsistent ESG data sources that led to biased or incomplete decisions. It was also considerably more difficult to assess your ESG performance and see where you stand compared to other organizations.
Today, with the help of ESG data convergence initiative software, any company can track data accurately and position its ESG strategy in rapport with industry benchmarks.
It also prompts organizations to stay accountable once they make certain claims or set climate-related targets. This can encourage entire sectors to keep developing themselves when it comes to their sustainability practices and ESG reporting tactics.
An attractive method of gaining investors’ trust
More transparency makes for a faster and better decision-making process for both business owners and investors. In turn, EDCI-compliant organizations can attract funding from investors that prioritize sustainability.
How to get started with the ESG Data Convergence Initiative
How you get started with the initiative can depend on your company's way of operating, but generally, there's a clear list of steps to follow if you want to join it. You'll want to start by becoming a member so you can use the resources they provide for your own ESG reporting.
Below, we've listed all the steps you should follow to take part in the EDCI in the next years. The steps include understanding the metrics you're collecting, sending, and validating your data.
Stay ahead of EDCI recommendations with ESG Flo. Gain trust, meet regulations, and attract sustainability-focused consumers through transparent ESG reporting.
