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Value of ESG not to be underestimated in fund selection process

Having a clearly defined environment, social and governance (ESG) policy is now a key factor in attracting investors to a fund, a London funds audience has heard.

Nearly 500 delegates attended the Guernsey Funds Forum in London on 12 May to hear a panel of leading funds experts debate investor perspectives, including a focus on ESG investment.

Tim Hughes (pictured), who leads PwC’s European team advising on management incentives in private equity, told the audience that ESG had become increasingly important in investor relations.

“You won’t raise some of the large funds these days without dealing with ESG within the PPM [Private Placement Memorandum]. Many investors would actually withdraw from funds if they’re not dealing with ESG properly and I think it’s equally important to the funds themselves – it’s not just the portfolio companies,” said Hughes.

“Many of these large funds have their own brand to protect these days. If something goes wrong in one of their portfolio companies their brand will be damaged. You cannot do business these days without having a policy around ESG and certainly, from the PwC perspective, we’ve got about 300 people sitting here in London working on this area and we’ve got a whole global practice working around it.”

Adam Black, Head of ESG and Sustainability at Coller Capital, explained that when he entered the private equity space with another firm eight years ago he was among the first in-house heads of sustainability.

“Not because our LPs were pushing for that interestingly – they are now – but because the firm were very active with their portfolio.  They recognised that there was a valid creation opportunity, a risk management opportunity, a value protection opportunity and that it was a skillset that we hadn’t deployed, beyond getting in external consultants to look at these issues at due diligence, rather than the holding period,” said Black.

He added that in the current market firms could not afford to ignore ESG as it would cost them more in the long-term, not only in terms of the intangible value of protecting their brand’s reputation, but also from achieving a successful IPO.

Blaise Duault, Head of Compliance and Public Affairs at PAI Partners, was also on the panel. He has chaired the French AFIC ESG Commission since 2015 and agreed that ESG was playing an ever-increasing role in investment analysis and decision making. 

“Two-thirds of our investment base is sensitive to ESG issues. It was one-third five years ago and it is expanding, expanding and expanding,” said Duault, who added that ESG could also be a way to differentiate between many competing funds that have the same performance.

In addition to the panel session on investor perspectives, the Guernsey Funds Forum hosted a keynote speech from Luke Johnson, Chairman of private equity house Risk Capital Partners and former Chairman of Channel 4 Television, as well as a second panel session on innovation in the funds arena.

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