Preqin ESG Solutions 29 • Signi昀椀cant variations in scores within a portfolio point to blind spots in a 昀椀rm’s process and philosophy that could generate costs for stakeholders. • Variations in scores between portfolios re昀氀ect the composition and the origins of the underlying risk exposure. • Finally, variation of scores within an institutional investor 昀椀rm indicates where exposure to ESG-related risks accumulates and how much these risks are diversi昀椀ed. Comparison of scores across institutional investor 昀椀rms gives an indication of their relative appetite for risk. To make fund- level scores easier to interpret, 0.0-2.5 is assessed as “Low”, 2.5-5.0 as “Moderate”, 5.0-7.5 as “High”, and 7.5-10.0 as “Very High”. Our solution was designed with the objective of providing a consistent and credible narrative. It is also deliberately neutral and data-driven, rather than analyst-driven, to minimize the possibility of unconscious bias. The role of The objective of our methodology is the evaluation of Risk Exposure Estimates for individual portfolio companies. industry and Relying on company-driven disclosure metrics, as in the case of publicly traded companies, is unfortunately not feasible with geography private companies, as the private markets are more opaque. Although many fund managers have access to proprietary portfolio-company-level data or asset-level information, this data is not necessarily consistent with the rest of the market, conformable, or accessible at scale. Hence the need for models to 昀椀ll in the gaps. We are able to assign a risk proxy to each portfolio company based on two fundamental characteristics: the primary industry in which they operate, because all companies operating in a speci昀椀c industry tend to be exposed to the same risks; and the geographic location of their headquarters, because the regulatory, economic, and physical environment is a decisive factor determining if risk to stakeholders materializes as cost. Our framework draws on a set of 177 publicly available indicators to generate an ESG risk exposure score for each private company in the market. The formulation of our risk exposure model imposes limitations on how it can be used. Our methodology requires each corporate identity to be tagged with an industry. ↗ Back to Contents