What PE Firms Look for in ESG Due Diligence
If you are in a leadership or legal role at a PE-backed company, ESG requests from your GP are probably landing on your desk more often. They come as formal questionnaires, data requests tied to annual reporting cycles, or pre-deal diligence packages. Whatever the format, someone in your organization is expected to own the response.
For most sub-$1 billion companies, that expectation arrives before any formal ESG program exists. No dedicated sustainability staff, no GHG inventory, and often no policies beyond what legal already has in place. That is a normal starting point. It does mean the first GP ESG request usually requires building something from scratch while responding to an immediate deadline.
Where you are in the PE relationship determines what the request looks like. Companies being acquired or receiving investment are asked to show what they have before the transaction closes. Portfolio companies are on annual reporting cycles tied to their GP's LP commitments. Companies preparing for a future sale are expected to have ESG documentation in order well before they go to market. Starting 12 to 18 months out is not too early.
One thing that catches companies off guard: the request comes from the GP directly, even when the underlying pressure comes from their LPs. You are responding to your GP's requirements, not to an LP standard you may never see. The GP is asking for what they need to report upstream, but the specifics are often opaque to the portfolio company receiving the request.
Here is what GPs are typically looking for.
When ESG due diligence happens
ESG requests come at two distinct moments.
The first is pre-close. Companies being acquired or receiving investment are increasingly expected to have ESG documentation in order before a transaction closes. A typical pre-close diligence package will ask what policies are in place, whether the company has completed a carbon footprint, and whether there are any material environmental or governance risks. If a deal is on the horizon, starting 12 to 18 months out gives you time to build something credible rather than producing documentation under deal pressure.
The second is post-close. Once in a GP's portfolio, ongoing ESG reporting requirements kick in. These are typically annual and tied to what the GP needs for LP reporting. This is usually the first time ESG becomes a real operational requirement for a portfolio company rather than something aspirational.
What GPs are actually asking for
The most common starting point is an open-ended question: what do you have in place? Examples include "Does the company have a sustainability policy?" and "Has the company completed a greenhouse gas inventory?" and "What ESG initiatives has the company undertaken in the past 12 months?" For most sub-$1 billion companies, the honest answer to most of these is not much. GPs working with smaller portfolio companies generally understand this. What they are looking for is an accurate picture of where you are and a credible sense of where you are going.
Beyond that baseline, the most common specific requests fall into a few categories.
Policies. GPs want to see basic governance and environmental policies documented. This does not need to be a comprehensive ESG program. A sustainability policy covering the company's environmental commitments, a code of conduct, and evidence that leadership has approved both is a reasonable starting point. Companies that have never formalized these are often surprised to find the documentation gap is the first thing a diligence team flags.
A GHG inventory. A greenhouse gas emissions calculation covering at least Scope 1 and 2 is increasingly standard. Scope 1 covers emissions your company directly controls, like natural gas and company vehicles. Scope 2 covers purchased electricity. Some GPs, particularly those with LP requirements tied to SFDR or other climate-focused mandates, will also ask for Scope 3, which covers supply chain and other indirect emissions. The inventory gives the GP data they can aggregate across their portfolio for LP reporting.
Framework alignment. The two frameworks that come up most often in PE ESG due diligence are SASB and the EDCI.
SASB provides industry-specific metrics that allow GPs to compare companies across their portfolio on a standardized basis. A professional services company would report on different SASB metrics than a pharma company, for example. If your GP is asking you to report against SASB, they will typically tell you which industry standard applies to your business.
The EDCI, or ESG Data Convergence Initiative, is a PE-specific framework launched by Carlyle and CalPERS in 2021 and now backed by over 450 GPs and LPs managing roughly $38 trillion in assets. If your GP is an EDCI signatory, they are required to collect a specific set of metrics from portfolio companies annually. The current EDCI core metrics include:
Scope 1 and 2 GHG emissions (Scope 3 optional)
Renewable energy percentage
Board and C-suite diversity (percentage of women, percentage of underrepresented groups)
Work-related accidents
Net new hires and employee turnover
Employee engagement or satisfaction score
Net zero commitment: does the company have a decarbonization strategy, a short-term emissions reduction target, and a long-term net zero goal?
Most of these metrics are straightforward to gather. The GHG emissions data requires an actual inventory. The net zero commitment questions are yes or no, but answering yes requires having something real in place.
Emissions reduction targets. This comes up more often when LP requirements are driving the request. If the fund is subject to SFDR Article 8 or Article 9 classification, the GP has stricter obligations. Those flow down to portfolio companies in the form of requirements for emissions data, reduction targets, and sometimes third-party verification of that data.
Related: Scope 1 and 2 Reduction Strategies for Office-Based Private Companies
How industry affects what you need
The starting point varies significantly by industry. CPG and pharma companies tend to have more ESG documentation in place because customer pressure has been building for years. If you sell to large retailers or pharmaceutical companies, you have likely already been asked for a carbon footprint or an EcoVadis assessment by a customer. A fintech or professional services company in the same fund will often be starting from scratch on those same items.
This matters because a GP managing a diversified portfolio is collecting the same set of EDCI or SASB metrics from companies with very different starting points. The companies that have already responded to customer ESG requests tend to have an easier time with GP diligence. The others are catching up.
What to prioritize if you are starting from zero
Read the questionnaire carefully before deciding what to build. Separate the mandatory items from the optional ones. Most GP ESG requests include a required set of data points and a longer list of preferred disclosures. Focus on the required items first.
For most companies, that means two things: getting basic policies documented and completing a first GHG inventory. Those two deliverables cover the majority of what a GP needs for their own reporting and give you a foundation for subsequent cycles.
If the GP is an EDCI signatory, pull up the EDCI metrics list and work through it systematically. Some items, like board composition and employee headcount, you likely have already. Others, like GHG emissions data, SBTi commitment or a documented climate strategy, require more work. Knowing which is which before you start saves a lot of time.
What comes after the first request
GP ESG reporting is not a one-time project. Once you have responded to a first request, you are on an annual cycle. That means updating your GHG inventory each year, tracking progress against any commitments you have made, and being prepared for follow-up questions as your GP's requirements evolve.
Companies that treat the first request as a one-time exercise tend to find themselves in the same position twelve months later. Building a basic reporting structure from the start, even a simple one, makes the ongoing work manageable.
How companies are handling the ESG workload
Most sub-$1 billion portfolio companies are not hiring a full-time sustainability person to manage GP ESG reporting. The workload does not justify it. An annual GHG inventory, a set of EDCI metrics, and a handful of policy updates do not add up to a full-time role.
What most companies are doing instead is bringing in outside help on a project or retainer basis. A fractional ESG consultant handles the inventory, pulls together the EDCI data, updates policies as needed, and is available when the next GP request comes in. The engagement scales up around reporting cycles and scales back when the work is done.
Related: ESG Metrics Every Private Company Should Be Tracking
This model works particularly well for portfolio companies that have a single internal point person, often in finance, legal, or operations, who owns the GP relationship but does not have the technical background to complete a GHG inventory or navigate framework requirements on their own. The fractional consultant does the technical work. The internal contact manages the relationship and keeps things moving internally.
The same model applies for companies preparing for a transaction. Getting ESG documentation in order 12 to 18 months before a sale does not require a full-time hire. It requires someone who has done this before and can work through it efficiently alongside your team.
Getting help
Most companies at this stage need someone who can read the GP questionnaire, identify what is actually required, complete the GHG inventory, and pull together the documentation. That is a defined scope of work, not an ongoing overhead. Getting it right the first time matters because the GP will ask again next year.
If you want to talk through what this would look like for your company, get in touch or learn more about consulting services like fractional ESG support and a carbon footprint.
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