Investors: GPs have good intentions on ESG

Almost one quarter of investors expect their fund managers to dramatically increase their focus on environmental, social and governance considerations in their portfolios over the next 14 months, according to a report by corporate management firm Intertrust.

Just under half, 48 percent, said private equity firms will achieve this by integrating ESG initiatives into their investment process over the next year, while 55 percent were confident firms would adopt the Principles for Responsible Investment if they were not already signatories.

Nearly 80 percent of private equity investors think GPs will increase their focus on ESG in the future.

Respondents said the biggest obstacles preventing ESG adoption by managers, is cost and resource constraints, difficulties applying an effective ESG evaluation model, and shortage of knowledge and expertise at GP level on the subject.

Meanwhile, evidence suggests investors are looking to GPs to take the lead on managing ESG at the investment level, according to LP comments at sister title Private Equity International’s Responsible Investment Forum in Berlin last month.

“There’s no way for us to monitor 2,000 companies. Our expectation is that the GP is managing the material risks. It’s not our job. It’s what we pay funds for,” said David Russell, co-head of responsible investment at USS investment management, a UK pension fund.

LPs are less confident on the transparency of these efforts at the portfolio level. Just under 40 percent thought it was likely firms would include reporting ESG performance of portfolio companies.
Large investors foresee this will change over the short-term.

“Reporting and data collection from GPs to LPs will increase over time. Prepare yourself for that. That will happen,” said Anders Stromblad, head of alternative investments at AP Fonden, the second Swedish national pension fund.