Investors in private markets - both limited partners (LPs) and the general partners (GPs) - are shifting towards an "ESG or nothing" investment philosophy, with over three-quarters planning to cease non-ESG private market investments by 2025, according to PwC Luxembourg.
The report - 'GPs' Global ESG Strategies: Disclosure Standards, Data Requirements & Strategic Options' - showcases the impact of ESG regulation across regions based on a survey of 300 GPs (the fund managers) and 300 LPs (the clients).
The report found that the importance of redirecting private capital towards sustainable objectives for value generation and a green transformation of the economy is being recognised by LPs and GPs.
Key findings include:
- Increased commitment to ESG – 87.5% of LPs surveyed are planning on increasing their private market ESG investments over the coming two years – with over a third targeting increases of more than 20%;
- Added value in ESG reporting – 66.6% of LPs surveyed stated that they were willing to accept higher management fees in exchange for notable improvements in their GPs’ ESG data reporting;
- Opportunity for growth – Private equity LPs and GPs currently have the lowest average asset allocation towards ESG products across the private market realm, as only 57.4% and 47.6% of private equity LPs and GPs allocate over 30% of their assets to Article 8 products;
- Sentiment towards EU Regulation – 60.5% of EU LPs surveyed described themselves as very satisfied with developments in EU regulation, closely followed by GPs with 57.1% on average being very satisfied with the impacts generated by ESG regulation.
Olivier Carré from PwC Luxembourg emphasised the need for GPs to adapt by embedding sustainability in operations. He said: "GPs minimising risks and positioning themselves can unlock long-term value creation potential."
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