In only a few short years, the ESG Data Convergence Initiative (EDCI) has become a cornerstone of ESG performance benchmarking in private markets. With annual metrics contributions from over 260 GPs and more than 6,200 portfolio companies, it has brought much-needed consistency and comparability to a space that was previously fragmented and very thin on good benchmarking content.
At Bridge House Advisors, we support clients (private equity investors and their portfolio companies) in collecting and reporting ESG metrics to the EDCI and other stakeholders. While the EDCI framework provides a “starter set” of benchmarking capabilities, we find that it falls short when investors and their companies are seeking actionable insights that connect ESG performance to desired financial outcomes.
We have learned that many portfolio companies contributing to the EDCI are already tracking ESG-related performance data and KPIs that extend beyond the EDCI’s mandatory requirements. ESG metrics like total Scope 1 and 2 emissions, energy use, or workplace injuries help provide a bird’s-eye view of how a company is doing relative to its peers, but our clients are often left asking, “Now what?”
For example, annual total energy usage, rolled up from multiple energy sources and converted to a common unit of measure, does not offer any actionable insights. Further, since the dollar signs (i.e., costs) are absent from this metric, the investor and the management team have no way of considering what this means from a business perspective. What the EDCI, in its current form, is missing is the “next layer”: a handful of targeted, decision-useful metrics that help decision-makers connect ESG performance to financial outcomes.
If You Have to Collect ESG Data, Seek Out a Few Extra Metrics
We work with our clients to build upon the EDCI’s metrics set with additional operational data that enables us to tie ESG performance to financial outcomes. For example:
- Energy management: By unpacking total annual energy consumption, we can analyze facility-level energy usage by type/source, spend, and building types to identify underperformers and estimate real cost savings potential across the facility portfolio.
- Health and safety: While the EDCI framework seeks injury rates, we take this data a step further by estimating the true cost associated with these incidents—including workers’ compensation claims and indirect losses—to help companies build the business case for stronger safety programs and quantify the financial return on those programs, in addition to the obvious people benefit.
- Turnover and retention: We help analyze the cost of high employee turnover—in recruitment, onboarding, and lost productivity— to help businesses quantify the impact of high turnover and inform smarter workforce strategies.
For example, a building equipment contractor that Bridge House works with reported a higher than sector average incident rate, according to Bridge House’s benchmarking sources and sector data from the EDCI. If the company were reporting to EDCI, only the incident rate would be considered as part of reporting and analysis. To understand the financial impact, Bridge House looked beyond the incident rate and applied a true cost calculator. We quantified both direct costs (e.g., workers’ compensation claims) and indirect costs (e.g., lost productivity, administrative time, and training for replacement workers), totaling approximately $50k. Based on an assumed target profit margin, the analysis suggested that the company would require over $650k in sales to offset these costs. This approach enables firms and portfolio companies to determine whether improvements in health and safety could drive a meaningful financial upside, helping to prioritize initiatives that strengthen both ESG performance and profitability.
In another example, Bridge House collects energy consumption for a manufacturer of precision parts that serve the aerospace and defense industry. In this case, one of the manufacturing locations was showing a higher energy consumption not only within the company, but across the entire portfolio of businesses within the firm. Once identified, Bridge House worked with the firm and the portfolio company to conduct a site walkthrough.
This site walkthrough identified energy savings opportunities of approximately 15-20%, which could directly reduce the cost of goods sold (COGS) at that location by nearly 5%. More importantly, these improvement opportunities did not require capital expenditures. Rather, they came from operational improvements across their core business like Operations & Maintenance (O&M) and overall Continuous Improvement (CI).
Ask Us How
By incorporating just a few additional data points (which the companies may already have), we can transform certain aspects of ESG reporting into a strategic diagnostic tool. This enables asset managers and their portfolio companies to make value-driven decisions that can be accretive to the business—whether that’s investing in energy management, improving workplace safety, or addressing talent retention challenges.
For firms already reporting to the EDCI, Bridge House can help unlock the next layer of value—bridging the gap between ESG metrics and operational performance.
Contact us to learn more about how our ESG metrics approach and processes can turn ESG data insights into profitable actions.
Skylar Bradley
ESG Consultant