Better, stronger companies and an improved public image are two core reasons why fund managers ought to be establishing and adhering to environmental, social and governance (ESG) programmes as part of their overall investment strategy.
That was the message opening keynote speaker Volkert Doeksen, chief executive of AlpInvest Partners, delivered Friday to a standing room only audience at Private Equity International’s Responsible Investment Forum in Amsterdam.
Noting stronger companies (with happier, engaged employees) was the primary rationale behind ESG, he also added that “we’ve had our fair share of negative publicity. The whole Mitt Romney candidacy hasn’t helped our industry. ESG can help us to put a more positive spin on things.”
AlpInvest – which has mandates to invest €6.8 billion across primary, secondary and co-investment opportunities between 2013 and 2015 – has for many years been an advocate of ESG policies, which Doeksen admitted was originally at the behest of its former Dutch pension fund sponsors PGGM and APG. As an aside, he noted one of the reasons the Carlyle Group was chosen to back AlpInvest’s buyout from PGGM and APG last year was because of the commitment Carlyle had shown to ESG.
We need to remain very vocal on all levels – please keep pushing, be more specific so GPs will respond.
He recalled how AlpInvest first began speaking to managers about the concepts, then developed a questionnaire to really push GPs to think through their various processes and approach to ESG as well as corporate social responsibility. Out of around 100 managers that first got the questionnaire, he said, “only one or two miserably failed and we didn’t commit”, while roughly 10 managers “really got it”.
Most others had an awareness and “they’re delighted to talk about it and give you examples” of how they may have confronted issues on the environment, child labour and so on. “They avoid obvious pitfalls and know intrinsically how to respond,” Doeksen said, noting however that didn’t constitute an ESG/responsible investment policy, but it was a start.
Doeksen noted that good progress has been made in recent years in making GPs aware of the need to embrace and adopt responsible investment policies – and that many very large global fund managers, such as Kohlberg Kravis Roberts and The Carlyle Group, had done so. But now, he said, “we are standing still a little bit” and challenged the European pensions who’ve led the ESG charge to get tougher on their fund managers, giving them “not just guidance” but specific details on implementation.
The industry needs that next push for wider adoption, he said. “It’s [the European LPs’] task to get it to the next level.”
While some US pensions may also have responsible investment policies, Doeksen noted that “in the US it’s not as high on the agenda … they have different issues to deal with and may not be focused on subjects like this, but I think that’s a missed chance. There should be more focus and more push from their large European counterparts to push this ahead. And in Asia, it’s even less on the agenda. I think that’s wrong. We need to remain very vocal on it at all levels – please keep pushing, be more specific so GPs will respond.”