UN ‘responsible’ code gains ground among LPs

Energy-focused private equity firm First Reserve says its decision to endorse a set of best investment practices spanning environmental, social and governance (ESG) issues – the United Nations’ Principles for Responsible Investment (PRI) – was initiated by requests from its limited partners.

“We observed over the past year that investors were increasingly asking about these things,” said Cailtyn MacDonald, the firm’s director of marketing and communications. “A lot of them are signatories themselves, and they have started asking GPs how they were addressing these issues. It’s not just important to the European, LPs – Americans, Canadians, and Australians have been asking about it too.”

Dozens of other private equity firms have also adopted the principles, though the asset class lags behind the listed equities space in signing up to the PRIs. Some 45 private equity firms and funds of funds have pledged to adhere to the principles, launched in 2006, including Abraaj Capital, Actis, AXA Private Equity, and Kohlberg Kravis Roberts & Co. The Private Equity Council, a US lobbying group representing around a dozen of the largest private equity firms, developed its own voluntary ESG code in February.

Many of the requirements of the principles are practices that First Reserve already employs, said managing director Cathleen Ellsworth, who is responsible for the firm’s marketing, fundraising and investor relations activities. Adopting the principles is largely a means of formalising and acknowledging these practices.

The most significant changes the firm is likely to enact are increased reporting, administration and record-keeping measures, Ellsworth said.

First Reserve has also joined the PRI’s private equity steering committee, whose other members are Actis, AlpInvest, AP2, APG, Blue Wolf Capital Management, California pension plans CalPERS and CalSTRS, Doughty Hanson, the European Private Equity and Venture Capital Association, La Caisse de dépôt et placement du Québec, La Caisse des Dépôts et Consignations, the New Zealand Superannuation Fund, Pantheon, PCG Asset Management, PGGM, Robeco, the UN Global Compact, the University Superannuation Scheme, and Washington State Investment Board.

Four of the LPs on the steering committee are investors in First Reserve funds, which helped to convince First Reserve to join the committee. The steering committee is tasked with promoting the initiative and creating broader awareness across the private equity industry, along with serving as a conduit for the concerns of various constituencies in the broader private equity community.