General partners (GPs) often take it “very personally” when investors decline commitments based on environmental, social, and governance (ESG) concerns, according to a report by New private Markets citing Benjamin Sabatier, principal at Belgian investment firm Sofina.
Sabatier shared these insights during a panel at the VentureESG Frame Conference in London last week.
Sabatier recounted two instances where Sofina declined to invest due to ESG issues, though he refrained from naming the firms involved. In one case, after initial discussions, Sofina determined the firm was “not the kind of company we want to be associated with” because of its unsustainable approach and mindset. In another, Sofina questioned why an existing manager in its portfolio had not improved its ESG rating. The response revealed a lack of alignment with Sofina’s sustainability values.
Sofina, a Belgian firm with €8.93bn in assets, focuses on providing patient capital to support sustainable growth. It has made investments in funds such as Syndicate One, Singular, and Kedaara Capital. The growing emphasis on sustainability is reflected in a Capstone Partners survey, which found that 63% of limited partners (LPs) are dedicating more time to ESG factors during due diligence than in recent years.
Rejecting managers for ESG reasons can lead to “very difficult discussions,” Sabatier explained. When an LP declines to reinvest based on ESG concerns, “you touch on the values of this GP,” which can be difficult for them to accept. He noted that one firm took Sofina’s rejection particularly hard, ceasing communication for a year before resuming talks.
“When you tell a GP, ‘I don’t trust your values,’ it’s very painful for them to hear,” Sabatier added, highlighting the personal nature of such decisions in the investment world.
