PE missing chance to tell ESG stories

Not enough GPs are measuring and reporting the value of their ESG programs, PwC says.

Few private equity firms measure how much value their ESG programs add, according to a report by PricewaterhouseCoopers that surveyed firms worldwide. 

Eighty percent of respondent firms said they monitor environmental issues in their investments, but only 14 percent measure the value it generates. Social and governance issues have similarly huge gaps. 

The report suggests this is because ESG monitoring “is insufficiently rigorous to allow financial conclusions to be drawn.”

Another reason often cited by private equity firms is that the methodologies don’t exist to allow value to be estimated.

Private equity has typically looked at ESG from a risk perspective and the majority of firms include ESG issues in pre-acquisition due diligence. “However, the value of that risk reduction is difficult to quantify,” the report said.

Therefore, “capturing value added by such activities happens late in the process, if at all,” the report said.

“The process of measuring the value added from ESG management needs to start as early as possible,” Hannah Routh, director of risk & controls assurance at PwC Hong Kong, said in a statement. “If a firm waits until the point of exit it is likely to miss an opportunity.”

The report, which surveyed 103 private equity firms in 18 countries, found that firms “appreciate the usefulness of ESG programs” and all respondents in all regions expected investor interest in ESG to increase over the next two years.

But ESG interest in Asia is far lower than in other regions. Only 8 percent of firms surveyed said investors in Asia Pacific were interested in ESG issues, well below those in North America (17 percent), South America (29 percent) and Europe (23 percent).

The global average was 21 percent. 

Moreover, only 15 percent of respondents in Asia Pacific said they disclose ESG activity in the portfolio to investors, the lowest number worldwide.