LPs on ESG: Africa no exception

While LP demand for responsible investment is fairly consistent across borders, GPs are adopting different approaches to ESG based on geography. 

Despite different levels of economic and political development, investor demand for responsible investment practices is fairly uniform across the emerging markets, according to a study of 68 LPs worldwide conducted by the Africa Private Equity and Venture Capital Association (AVCA).

The trade body found that most LPs find ESG factors as important in Africa as they do in Asia, Latin America and other frontier markets. However, governance is a relatively more important issue in Africa compared with the other emerging markets, with 40 percent of LPs placing a greater level of emphasis on this than on the other ESG factors, the report said.

“Whilst market and operational experience are key components in the selection of an African GP, ESG is increasingly a key factor for LPs,” said AVCA research director Dorothy Kelso.

The findings could lead private fund managers worldwide to standardize more their approach to ESG management, which is being executed in different ways based on a manager’s geography, a similar study found.

London Business School's Coller Institute of Private Equity, in partnership with private equity firm Adveq, surveyed 42 private equity firms globally and found that geography is a primary determinant of what type of responsible investment strategy a manager adopts.

The report found European managers tend to apply ESG policies by industry, suggesting a sector-based adoption of ESG policies. In contrast, Asia-Pacific and MENA managers have almost no uniformity in their ESG policies and procedures, with most firms considering ESG policies more as guidelines than as hard and fast rules.

North American managers are sandwiched in the middle between the two extremes, with some firms taking an industry-specific approach and others treating ESG policies as guidelines reserved for select investments.