GPs, LPs misaligned on ESG interests

Global private equity firms have not devoted increased attention to environmental, social and governance (ESG) considerations compared to last year, even though LPs are valuing ESG practices more than ever, according to Pitchbook’s 2015 PE ESG Survey.

Compared to a similar survey conducted by Pitchbook last year, the percentage of North American GPs with established ESG programs has remained unchanged at around 56 percent of survey respondents. Although European firms are more likely to have an established program with about 69 percent of this year’s respondents indicating as such, it marks a decline from last year, when 78 percent of European respondents said they had an ESG program.

GPs are demonstrating their ambivalence towards ESG by being less likely than last year to endorse or follow ESG-related guidelines sponsored by such groups as the UN-supported Principles for Responsible Investment, the Institutional Limited Partners Association and the Private Equity Growth Capital Council. LPs’ participation across the board in these programs, however, has remained the same or increased.

Indeed, 80 percent of North American LPs that responded to the survey stated that their focus on ESG issues had grown, whereas last year only 57 percent felt that way. European LPs, like European GPs, are more dedicated to ESG considerations, with 100 percent of respondents saying that their focus on ESG has increased, and around 30 percent saying they consider ESG practices “essential” when deciding whether or not to commit to a fund.

More importantly, when considering a commitment to a fund sponsored by a GP with an ESG program versus one without, LPs are increasingly likely to choose the firm with a strong ESG program and slightly lower performance than the GP with no ESG program and top quartile performance.