Private equity managers highlight importance of UN Sustainable Development Goals to address key environmental and social challenges

An overwhelming majority (90 per cent) of private equity managers believe the UN Sustainable Development Goals (SDGs) will help the financial industry address pressing environmental and social challenges, according to a new study by LGT Capital Partners.

The LGT Capital Partners’ study – ESG and the SDGs: Insights from private equity managers – assesses the views of 117 private equity managers across the globe, looking at the importance of ESG in their day-to-day decision-making, the reasons for integrating ESG into their activities, and what they plan to focus on in the future.

The research found that three-quarters of private equity managers think ESG is relevant to investment decision-making, with 70 per cent having declined investments due to ESG concerns. In addition, 90 per cent of those interviewed believe that incorporating ESG either increases or has a neutral effect on risk-adjusted returns, with 10 per cent thinking that it has a negative effect.

Other key findings from the LGT Capital Partners’ report, ESG and the SDGs: Insights from private equity managers, are:

• Over a quarter (28 per cent) of private equity managers already integrate the UN SDGs into their investment activities, with a further 34 per cent planning to do so

• Private equity managers are increasingly aware of the importance of ESG issues to their investors: a strong majority (58 per cent) noted that their investors were either ‘concerned’ or ‘very concerned’ about ESG integration into their private equity portfolios

• Managers ranked climate change and carbon emissions as the most important environmental issues – by a wide margin. Governance, however is their top priority overall, with 56 per cent of respondents identifying it as their main ESG focus

• Managers highlighted reporting and data collection as two key areas for further ESG improvement

• Managers say they need greater availability of data sources for measuring ESG factors in order to deepen ESG integration into their investment decision-making

To help managers frame their approach to enhancing ESG capabilities, LGT Capital Partners has simultaneously published a new guide on ESG integration in private equity, called “Implementing ESG in private equity 2.0”. The new publication is a collection of eight ESG case studies from leading private equity managers, including AEA, Summa, Genstar, NewQuest, Hg, Triton, GenBridge and KKR. The guide highlights the latest developments in ESG integration, ranging from climate change and diversity to  data security and ESG value creation. LGT Capital Partners anticipates that the case studies will help to expand the ESG toolbox by making ESG integration more business-relevant and useful to private equity managers.

Tycho Sneyers, Managing Partner at LGT Capital Partners and board member at UN PRI, says: "Private equity is perhaps the asset class best placed to address environmental, social and governance considerations. Our findings show that both managers and investors are increasingly aware of the importance of ESG integration, both in addressing the major challenges that the world faces and in delivering attractive risk-adjusted returns over the long term. The SDGs play a major role making investment activities more outcome-orientated and broadening the way in which managers integrate ESG.”