PE criticised for missing ESG message

Despite recent progress on ESG – particularly in Europe – private equity is not making the most of the opportunities it provides, argue LPs including the European Investment Fund.

The private equity industry still hasn't fully recognised its potential to have a positive social and environmental impact, LPs suggested at the Responsible Investment Summit in Brussels on Tuesday.

The industry as a whole is still not doing enough, said Ulrich Grabenwarter, head of venture capital at European Investment Fund. “When it comes to the opinion the industry has on the possibility to create financial returns as well as [making a] social and environmental impact, [that] is probably something that has not filtered through yet entirely, neither on the side of investors nor the side of the fund managers.”  

I think we [should] turn this into something that’s fun, which it is, and … focus on the investment opportunities

Jochen Wermuth, chief investment officer and managing partner at Wermuth Asset Management, agreed that private equity was still not investing in areas where its impact could be greatest. “Very little money is going anywhere sensible,” he said. “My fear is that climate change – which has really accelerated this summer – is happening much faster. And I don’t want to be the person that heard about this for three decades [and has not done anything about it]. It is horrible news; we have to wake up,” he said.   

The good news for European investors is they they're probably ahead of the curve on ESG compared to their US counterparts, according to Marta Jankovic, a senior sustainability and governance specialist at APG Asset Management. APG, for instance, actively pursues a responsible investment approach, and shares this information with its ultimate beneficiaries. “If you are a Dutch teacher and you want to know what’s happening to your pension from a responsible investment point, you can find the information on our website,” she said.

This kind of pressure for more action and transparency on ESG is clearly driving change. “The biggest client we service is [a healthcare pension fund] and this is a really important issue for them,” said Tim van der Weide, ESG advisor and specialist at PGGM. 

The key to increasing awareness, he added, was to focus on the opportunity, not the threat. “I think we [should] turn this into something that’s fun, which it is, and … focus on the investment opportunities.” 

Grabenwarter also believes that ESG offers managers an important opportunity. “If it’s true – and evidence in the market increasingly shows [it is] – that you can create financial returns with an element of social responsibility, then this is actually the prime opportunity for investment managers to differentiate themselves … and to become more attractive to institutional investors,” he said.