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Anti-ESG Movement Polarising Private Markets

Politics divides investment strategies as LPs and GPs continue to grapple with impact measurement.  

There is a growing divide between private market investors adopting sustainable investing strategies and those choosing to distance themselves from sustainability-related themes and considerations due to the anti-ESG movement.  

Specialist data and research provider PitchBook’s ‘2023 Sustainable Investment Survey’ collated insights from over 400 general partners (GPs) and limited partners (LPs), noting that there are signs of both increased adoption of sustainable investing practices and respondents with no sustainable investment programme at all.  

The proportion of survey respondents that have integrated sustainable investment principles throughout their portfolio has increased from 30% in 2021 to 37% in 2023, the report said. Conversely, the percentage of respondents with no plans to incorporate sustainability into their investment decision-making has grown from 9% in 2021 to 17% in 2023.  

“Those exploring in 2021 seem to have sorted themselves into either adopters or those who will not be pursuing sustainable investment objectives,” the report said.  

On a spectrum of one, ‘performance is the only important factor’, to nine, ‘sustainability is the only important factor’, around 15% scored one, up from 10% in 2021, and around 10% scored nine, up from 5% in 2021.  

“Potentially due to the politicisation of ESG and sustainable investing in the past couple of years, several questions showed a retraction of support from this area by allocators versus the responses from 2022,” PitchBook said.  

“More LPs said they had no exposure to sustainable investment products, more LPs said it is not at all important that GPs utilise an ESG risk-factor framework, fewer LPs evaluate a fund manager’s implementation of an ESG risk-factor framework when performing due diligence, and so on. 

“The climate of negative rhetoric has emboldened some to more forcefully register their feelings, but it may also be that some LPs have decided that adding on the complexity of evaluating sustainable investment practices to an investment due diligence practice was more bother than they felt it was worth.” 

The findings are likely influenced by the geographical location of many of the respondents, the report added, noting that 55% are based in North America. Twenty-four percent of North American respondents said they have no plans to incorporate any sustainable investment work, followed by 10% of European respondents.  

The anti-ESG movement in the US has resulted in some of the country’s largest investors exiting net zero alliances, for fear of breaching anti-trust laws.  

Last month, a coalition of 300 investors collectively managing US$4 trillion in assets wrote to both houses of US Congress, urging them to oppose moves to block ESG investing.  

Recent analysis by data and research provider Morningstar noted that anti-ESG fund inflows have slowed significantly, following a US$376 million peak in Q3 2022.  

A separate report published by LGT Capital Partners has further noted that the proportion of private equity managers assessing and measuring climate-related risks has “risen sharply” over the past year, increasing 12 percentage points to 55%. 

“This shift has been largely supported by regulators demanding greater clarity in how ESG is defined and applied, particularly the implementation of [the EU’s] Sustainable Finance Disclosure Regulation, which is the most wide-ranging ESG regulatory framework currently implemented,” said Tycho Sneyers, Managing Partner at LGT Capital Partners.  

No convergence yet 

There continues to be a lack of convergence in impact measurement strategies, the PitchBook survey noted.  

PitchBook said 14% of impact investors use a standard framework, 39% use a custom framework, and 46% don’t measure at all.  

Many of the custom framework respondents are building bespoke reporting from standard frameworks, the report added, including referring to the UN Sustainable Development Goals (SDGs) and the Global Impact Investing Network’s (GIIN) IRIS+ platform.  

Respondents also highlighted the Impact Management Platform (IMP), which was first established in 2021 to provide resources to investors across public and private markets to help them implement core impact management actions, including sustainability-related disclosures and business strategies.  

IMP recently published new material to guide investors, including a thought piece on the importance of impact management, guidance on actions of impact management, and an overview of key terms and concepts.  

However, this “is not terribly promising when it comes to convergence, which is desired by many but practiced by too few”, PitchBook said.  

This is a widespread issue for the impact investment market, according to a previous report by the International Finance Corporation (IFC), which noted that only a quarter (US$636 billion) of impact investments in 2020 had a clear impact management system in place. 

Sixty-three percent of respondents to the PitchBook survey said they are managing investment products said they offer impact strategies to external parties and 13% are developing an impact strategy. Most impact investments are focused on energy (62%), followed by climate (60%) and agriculture (44%).  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2023 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

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