Private Equity Professionals’ Emphasis on ESG Initiatives Continue to Rise
April 15, 2015
59% of general partners surveyed by PitchBook had an established ESG program as of 2014 with a steady increase in the number of firms currently developing ESG programs.
SEATTLE – PitchBook Data, Inc. has released its third annual PE ESG Survey Report, displaying slow, yet promising developments in ESG activity both in the U.S. and Europe. Unsurprisingly, survey results show sponsors (general partners or GPs) noticing a rise in LP concern regarding ESG programs, with an increase from roughly 50 percent in 2012 to over 80 percent in 2014. GPs mainly take this into consideration when fundraising and conducting due diligence, according to 61 percent of GP respondents. And, while 69 percent of responding investors (limited partners or LPs) rated having an ESG program from important to essential, overall survey results show a slow adoption of ESG programs at the PE firm-level.
Additional PE ESG Survey Report Highlights:
The number of respondents who indicated their firm is currently developing an ESG program has grown from 8 percent in 2012 to 20 percent in 2014
European GPs are more heavily involved in ESG issues than North American GPs, 69 percent to 56 percent.
61 percent of GP respondents mentioned risk management as a driver for increased ESG efforts.
LPs were the biggest drivers for ESG programs at PE firms according to 2014 respondents, with 71 percent of GPs saying LPs were a factor.
From 2013 to 2014, there was a slight increase, 31 percent to 33 percent, in the proportion of respondents indicating ESG implementation at portfolio companies as essential or very important.
Over half (51 percent) of GP respondents said “effective metrics to monitor performance” were the biggest challenge for ESG programs and initiatives in 2014.
69 percent of LP respondents in 2014 said ESG issues were important, very important or essential when evaluating investments in GPs.
The percentage of LP respondents who stated their focus on ESG issues had increased jumped from about 57 percent in 2014 to over 80 percent this year.
LP respondents most highly prioritized business integrity and corporate governance in 2014, citing environmental & social consciousness as the most pressing reason for their ESG concern. For more information and analysis, downloaded the free report here.
“Slowly but surely, PE firms are increasingly adopting ESG initiatives, sometimes at the behest of their LPs, but more often because those initiatives are helping their returns,” says Editor at PitchBook Data, Inc, Alex Lykken. “Because GPs are progressively realizing the importance of ESG initiatives as a part of conducting business, we only expect these numbers to go up.”