As fund managers work to identify a diversity and HR reporting strategy that helps them stay compliant with California’s new reporting law and unlock increased ROI, several strategic considerations come into play.
Near the top of this list is the actual selection of diversity and HR metrics on which to report. General partners face a challenging task in determining which metrics to gather across their portfolios, as the dizzying array of reporting frameworks, organizations, and systems (CSRD, SFDR, TCFD, CDP, ISSB, UNPRI, ILPA, EDCI, among others) each put forth different metrics.
Key Reporting Frameworks
While each framework and system is worth considering, three stand out as particularly relevant in the world of venture capital and private equity: California's latest SB 54 metrics, ILPA’s Diversity and Action template, and EDCI’s standardized metrics.
California SB 54: On October 8, 2023, California passed into law a bill mandating venture capital firms to report on diversity data across their portfolio. The metrics requested include:
- Diversity by race, ethnicity, gender identity, LGBTQ+ status, disability status, and veteran status of each of their portfolio company founders
- Total number of and dollar amounts invested in companies primarily founded by diverse teams, broken down by demographic categories
- Aggregate investment amounts and locations for all portfolio companies
ILPA Diversity in Action: ILPA, the Institutional Limited Partners Association, is one of the cornerstone, global limited partner alliances. In 2020, ILPA launched its Diversity in Action initiative, which brings together LPs and general partners (GPs) who “share a commitment to advancing diversity, equity and inclusion in the private equity industry.” Among other DEI-additive practices, ILPA’s Diversity and Action has also set a high standard for diversity reporting, with a fulsome template that asks for:
- Diversity by intersection of race/ethnicity and gender, split by seniority (leadership vs. senior vs. all else) and function (investment vs. operations)
- Fund ownership by intersection of race/ethnicity and gender
- Staff attrition, new hire, and promotion by intersection of race/ethnicity and gender
- Board of Directors by intersection of race/ethnicity and gender, split by type (GP/VC Employee, Company Employee, Independent, Other)
- Board Chairs by intersection of race/ethnicity and gender
- Senior management (C-Suite and C-Suite minus one) by intersection of race/ethnicity and gender
EDCI: The ESG Data Convergence Initiative was started by a small group of LPs and GPs (led by CalPERS, the California Employees' Public Retirement System, and The Carlyle Group) in 2020 to identify “meaningful, performance-based, and comparable ESG data for the private equity industry.” Among other metrics focused on environmental impact and workplace safety, they encourage the following diversity and HR reporting:
- % women on board
- % women in C-suite
- % underrepresented groups on board (optional)
- % LGBTQ on board (optional)
- Net new hires (organic and total)
At Arbor, we understand that the vast majority of necessary data is captured in modern HR and applicant tracking systems. The missing data is often particularly sensitive, with data security, privacy, and anonymity being of paramount importance. Moreover, individual portfolio companies are repeatedly being asked to report on this data in slightly different ways, generating significant administrative burden.
Our approach simplifies the burden of reporting by intaking data from existing systems and standardizing across different reporting frameworks (including ILPA and EDCI). For sensitive data not yet captured by existing systems, our platform enables teams to easily, and compliantly, self-report demographic information.