Over three-quarters (78 per cent) of private equity investors expect General Partners (GPs) to increase their focus on managing Environmental, Social & Governance (ESG) considerations in their portfolios over the next two years.
That’s according to a new study by Intertrust, a provider of fund, trust and corporate services, which reveals that majority (55 per cent) of investors think that GPs are most likely to begin their ESG drive with adopting the Principles for Responsible Investment (PRI), a voluntary set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice.
Nearly half (48 per cent) expect to see GPs starting to integrate ESG into all aspects of the investment process including due diligence, risk analysis and investment committee decision-making. Four in ten (39 per cent) believe GPs will start to report ESG performance at portfolio company level.
The research highlighted the biggest obstacles preventing the adoption of ESG requirements; leading these are cost and resource constraints (51 per cent) followed by applying an effective ESG evaluation model (39 per cent) and a knowledge shortage at GP level (38 per cent).
Paul Lawrence, Global Head of Funds at Intertrust, says: “GPs have become more familiar with ESG requirements and it’s now a more formal part of their investment due diligence. But there is no question that cost and resource constraints will hinder progress while many GPs remain concerned about how to measure its impact. This also adds to the already complex reporting requirements falling to GPs to manage and increases the need for them to critically look at their operating model for the optimal solution.”
Tim Hames, Director General of the British Private Equity and Venture Capital Association, adds: ‘The integration of ESG into a GP’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.”
