A new Environmental, Social and Corporate Governance (ESG) Disclosure Framework for Private Equity has been published, following a 16 month consultation and drafting process that involved a group of more than 40 limited partners from 11 countries, 20 private equity associations, and 10 general partners.
The ESG Disclosure Framework has been developed to help general partners better understand why limited partners want ESG related information, and to help rationalise the types of questions that LPs are increasingly asking GPs on ESG.
The document outlines eight objectives common to many LPs who want more structured ESG disclosures within their private equity investments. The first five objectives relate to the fund due diligence process, and the next three relate to disclosures during the life of the fund. Guidance is also provided on the disclosure of information around unexpected events that might pose reputation risks to an LP, GP or portfolio company.
Tom Rotherham-Winqvist, director of private markets at Hermes Equity Ownership Services, who chaired the drafting process, says: "This is an example of what can be achieved within the private equity sector when there is a common interest, mutual respect and a commitment to finding pragmatic solutions. This will help give LPs better insights into the management of underlying portfolio companies – something a growing number believe is needed to fulfil their fiduciary duty."
Along with many of the world’s leading private equity associations, the drafting group benefited from close contact with the Board of the International Private Equity Valuations (IPEV), the Institutional Limited Partners Associations (ILPA) and the UN-backed Principles for Responsible Investment (PRI). This helped to ensure that the ESG Disclosure Framework is complementary to the recently released IPEV Reporting Guidelines and the ILPA Quarterly Reporting Standards, and is broadly consistent with the private equity section of the upcoming UN PRI reporting & assessment survey.
Réal Desrochers, senior investment officer, CalPERS Private Equity, says: “ESG is a strategic priority across the CalPERS investment portfolio. This disclosure framework will help clarify and define the information needed by limited partners in order to assess how private equity firms manage ESG risks and opportunities across their portfolio.”
Ruulke Bagijn, chief investment officer private markets at PGGM, says: “Responsible investing is one of our investment beliefs. For it to become practice, ESG disclosure is important, because what is disclosed, will be managed. We believe the ESG disclosure framework will lead to effective management of ESG risk and value creation. Moreover, the framework is an important step towards more coordination and alignment among the LP community.”
