Preqin ESG Solutions 26 ESG Risk Exposure Estimates The recognition of sustainability factors in investment has put in a spotlight a spectrum of risks the structured approach to which is pivotal to company’s long-term success. These risks are characterized by double materiality12 – that is they are material either from a 昀椀nancial, or an impact perspective (or both). Full risk assessment is an essential pre-cursor to committing to any deal, since errors can be very costly. The recent bankruptcies of Theranos and FTX exemplify the consequences of a failure in governance, which is a central 2 area of sustainability risk management.3 Preqin Pro data indicates these companies had considerable exposure to Leadership and Governance as well as Business Model and Innovation risk – issues which should have been 昀氀agged during a thorough pre due diligence. Sustainability risks are hard to quantify, however. They are particularly daunting in the case of private markets, where the proprietary portfolio company-level data available to fund managers is not universal, standardized, or su昀케ciently granular. Another challenge is to capture sustainability risks at di昀昀erent levels – from individual portfolio companies, through investment portfolios, up to institutional investor 昀椀rms. This section describes how Preqin’s ESG Risk Exposure Estimates address these issues. 2 A sustainability matter is said to be “double material” if it is material from either the impact perspective, or the 昀椀nancial perspective, or both perspectives. 3 Described by the new FTX chief as a “complete failure of corporate controls”. ↗ Back to Contents