Europe is leading the way in ESG integration and especially among alternatives managers, the LGT Capital Partners’ annual ESG Report has found.
The report – assessing some 294 managers globally, grading them on how successfully they have integrated environmental, social and governance (ESG) considerations into their investment activities – rated some 58% of private equity firms as either excellent or good in terms of ESG integration, compared to just 27% in 2014. From this share, 75% of private equity managers in Europe were ranked as excellent or good too
The US has shown some improvement in the last year increasing by 5% the number of US private equity managers ranking at least fair for ESG integration.
The LGT Capital Partners report also found that 86% of mega asset managers and 58% of large ones rank as excellent or good. However, size should not be considered a barrier to ESG integration, as 52% of small managers have also scored high qualifications.
In the hedge fund space, 82% of managers are now ranked as fair or above with respect to ESG integration, a significant improvement compared to the 54% recorded in LGT’s 2014 report. Once again, Europe leads the way, with 23% of managers ranked as good and none of those surveyed ranking as poor. Conversely, hedge funds in the US and Asia continue to lag behind significantly having only taken basic steps towards ESG integration.
LGT Capital Partners’ analysis is based on assessment of managers across four key criteria: commitment to ESG through the development of specific policies or adherence to broader industry standards (such as UN PRI); the extent to which ESG is formally integrated into investment processes; ownership philosophy and the extent to which managers are active in defining the ESG practices of investee companies; and their reporting on ESG (at both portfolio company and aggregate fund levels). Managers are then assigned an overall rating on a scale of one to four, where one indicates ESG excellence and four indicates little or no institutionalized commitments to ESG practices.