Responsible investment and sustainable development growing priority for private equity

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The FINANCIAL — 81% of private equity firms report environmental, social and governance (ESG) matters to the Board at least once a year. 67% of respondents prioritised and identified SDGs (Sustainable Development Goals) relevant to their investments in 2018; 91% of private equity firms have adopted or are developing responsible investment/ESG policies; Human rights (76%) and climate risk (83%) among the increasing concerns across private equity

Responsible investment – involving the management of environmental, social and governance (ESG) issues – is an increasingly significant consideration for both private equity houses (general partners – GPs) and investors (limited partners – LPs), according to a new survey released by PwC.

The 2019 survey has found that nearly 81% of respondents are reporting ESG matters to their boards at least once a year, with a third (35%) doing so more often. Almost all (91%) report having a policy in place or in development, compared to 80% in 2013. Of these, 78% are using or developing KPIs to track, measure and report on progress of their responsible investment or ESG policy.

Most strikingly, 35% of respondents report having a team dedicated to responsible investment activity (an increase from 27% in 2016). Of those without a specific function, 66% rely on their Investment/Deal teams to manage ESG matters.

Meanwhile, two thirds (67%) of respondents have identified and prioritised SDGs that are relevant to their investments (compared to 38% in 2016) and 43% have a proactive approach to monitoring and reporting portfolio company performance against the SDGs (up from 16% in 2016).

“This is a really encouraging survey that suggests responsible investment is starting to come of age in terms of driving sustainable business practice”, Will Jackson-Moore, global private equity, real assets and sovereign fund leader at PwC, said. “The private equity sector has a vital role to play in supporting sustainable development. The survey highlights that private equity houses and LPs are taking that responsibility seriously and driving genuine change. That is especially important as their role in global capital markets increases”.

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“It is heartening to see that responsible investment is seen as a matter for those at the heart of the investment process and needs to be supported by rigorous monitoring and reporting. LPs are playing a vital role in applying pressure to act on key areas of environmental, social and governance concerns and in influencing board agendas.

“Yet while responsible investment may only be at the ‘young adult’ stage of development, these are signs of increasing maturity.”

Even so, the survey also acknowledges a continued distance between those considering action, and those taking proactive steps. For instance, while 89% of respondents cite cyber and data security as a concern, only 41% are taking action. Similarly, 83% are concerned by climate risk for their portfolio companies, yet only 31% have acted upon this.

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