Study: ESG reporting focuses on risk not reward

More GPs are reporting and monitoring portfolio company ESG risks, but few are calculating the value they create through these initiatives, according to fresh research.

Private equity firms are not assigning a value to their environmental, social and governance (ESG) work, according to PwC research. 

In a survey PwC asked 103 private equity firms across 18 countries about their ESG initiatives. The professional services firm discovered more than 80 percent of respondents monitor ESG activites at the portfolio company level, but less than 15 percent of GPs calculate the value their ESG activity produces. 

These results show that private equity houses understand the value of ESG management but are not quantifying and communicating that value to investors, said in a statement Phil Case, a PwC director who focuses on sustainability and climate change. 

Case said GPs are missing an opportunity as most GPs believe ESG to be near the top of investors’ minds with four-fifths of respondents saying investor interest in ESG will increase in the next two years.

But calculating the value-add of ESG policies is not easy, added Case. He said “it needs specialised skills, dedicated resources and new ways of thinking about how companies are managed and where economies and growth are headed.”

The survey further showed GPs are focusing their ESG management towards risk rather than opportunity as ESG activity levels are high at the acquisition stage.

GPs are keen to identify potential problems at target companies and the survey found 71 percent of GPs include ESG issues in pre-acquisition due diligence.