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Private equity firms to take up ESG investing

Green_energyPrivate equity clients expect their fund providers to focus more on responsible investing in the next two years, research has found.

Almost 80% of the 142 investors surveyed believed asset managers in the private equity industry would increase their environmental, social and governance (ESG) criteria when making investments, according to Intertrust, a fund services provider that surveyed clients of private equity firms.

The finding comes a day after Hermes Investment Management released research that showed more investors were casting doubts on ESG investing as a source of extra return.

But Intertrust quotes Tim Hames, director general of the British Private Equity and Venture Capital Association, voicing support for ESG investing.

“The integration of ESG into a GP’s [general practioner’s] operations has been high on the industry’s agenda for some years now. Many firms have demonstrated that ESG integration can add value to a portfolio and there is growing support for adopting the Principles of Responsible Investment (PRI),” he said.

In the Intertrust survey, just over half of the respondents expect that private equity funds will begin their ESG drive by adopting the PRI, a voluntary set of investment principles.

Nearly half (48%) expect to see providers start to integrate ESG into all aspects of the investment process including due diligence, risk analysis and investment committee decision-making, and four in ten believe GPs will start to report ESG performance at portfolio company level.

However, there are three main obstacles to wider ESG adoption, which the survey showed to be: cost and resource constraints; efficacy of ESG evaluation models; and a knowledge shortage at the executive level. 

Paul Lawrence, Intertrust’s global head of funds, said: “GPs [general partners] have become more familiar with ESG requirements and it’s now a more formal part of their investment due diligence.”

Hames the integration of ESG into private equity operations has been “high on the industry’s agenda for some years”.

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