Private Equity Firms integrating ESG, but Only a Quarter Have Dedicated Teams

PE managers’ approach to ESG is becoming an important consideration for investors, says BDO.

Slightly less than two thirds (63%) of UK-based private equity (PE) firms now factor ESG considerations into their investment decisions, but less than a third have a public ESG policy and only a quarter have a dedicated team.

A survey of 100 UK private equity houses by accounting and advisory services provider BDO suggests the sector is responding to pressure from institutional investors and investment consultants.

Just under half of firms surveyed said they had signed up to the United Nations’ Principles for Responsible Investment, which lays out six core requirements for the investment policies and processes of signatories. A similar proportion said they report in detail on the ESG Impacts of their investments, with almost six in ten (57%) claiming to have ‘set out changes made to make investments more sustainable’.

The PE industry has seen substantial inflows from institutional investors in recent years. As asset owners with long-term investment horizons, such as pension funds, insurers and charities, increase their focus on sustainable investment strategies, PE firms have come under pressure to follow suit.

In a survey published last November by Preqin, 61% of institutional investors said ESG would become more integral to the alternative assets industry over the next 36 months.

To continue to attract investment, BDO said, PE firms increasingly need to demonstrate the impact of their ESG policies, as well as the presence of ESG considerations in their due diligence and risk assessment exercises. BDO Partner Jamie Austin said PE managers’ approach to ESG is becoming an important consideration for limited partners.

“There’s still a way to go and some firms may look increasingly isolated by making no reference whatsoever to ESG. Investors will not just want a commitment to ESG – they will also want tangible proof of how the private equity fund has actually delivered on that commitment,” he said.


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