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Private equity ESG plays vital role in LPs’ investment decisions, says new survey

Limited Partners surveyed in the inaugural Brackendale Private Equity ESG LP sentiment survey 2020 rank ESG criteria an average 7.5 out of 10 in terms of importance when making an investment decision. LP respondents hail from across Europe and the US, and include a mix of pension funds, insurance companies, family offices and fund-of-funds.

“As a firm we believe that better ESG practices help mitigate risk, build better companies and achieve stronger returns from a financial and non-financial perspective,” said one LP. Another explained, “a well-integrated ESG process is important for us, and the fund manager has to have that for us to make an investment.”

In terms of what constitutes a good ESG report, LPs were unanimous that Key Performance Indicators (KPIs) were a must-have, with specific criteria and reporting based on concrete measures, rather than generic policies. LPs stated they wanted to see tangible and evidenced improvements being made by the GP, with examples in action, rather than “just good business practice.”

Brackendale’s survey also explored what made for a poor ESG Report and “being too superficial” came top of the list of criticisms. LPs complained of “too superficial statements on intent or philosophy, but no substance” or “all talk and no data.” They also criticised greenwashing, whitewashing of evident issues, and the lack of a top management member responsible for ESG.

Despite the clear room for improvement, one finding was clear: ESG is here to stay. And as ESG reporting becomes more mainstream, it is gradually improving.

Fay Margo, Founding CEO, Brackendale, says: “Brackendale has been writing and designing private equity ESG reports for past few years, so we thought it would be a useful exercise to get feedback from the LP fund investors themselves as to what they do (and don’t) wish to see in an ESG report. Fortunately, LP feedback and comments underpin the theories we already uphold on what constitutes a good ESG report and the importance of being ESG conscious.”

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