A survey by Aberdeen Standard Investments (ASI) has found that ESG engagement in private equity firms is increasing.
Results showed continued strong ESG engagement across Europe and an improvement in quality from Asia-Pacific. Private Equity firms are clearly increasingly aware of issues such as climate change and are responding with action such as carbon offsetting and reducing their reliance on single-use plastics.
Only 38% of firms surveyed however, are signatories of UNPRI, UN Compact or similar. Results also show that Firms based in North America appear to be lagging behind their European and Asia-Pacific counterparts.
The general trend suggests that private equity firms are regarding ESG as increasingly important, with firms based in Europe leading the way."
The survey, now in its fifth year, aims to monitor the current level of engagement at both the General Partner (GP) and underlying portfolio company level. The survey was sent to 176 GPs across Europe (60), North America (82) and Asia-Pacific (34) with an overall response rate of 52%.
Respondents of the survey were given an overall ESG rating according to their responses.
Key points include:
- ESG remains an important consideration for GPs in Europe, with a consistent number of respondents achieving a Green rating in 2019. Indeed, no respondents from Europe were assigned a Red rating
- More than half of the respondents implemented at least one positive ESG change in the year, with many introducing several initiatives
- Results show that North America continues to lag behind Europe and APAC
- Less than one third of GPs surveyed are a formal signatory of the UNPRI, UN Global Compact or similar, or are considering becoming a signatory. Indeed, 39% have no current plans to do so.
- There's an increased focus on the UNSDGs, though many GPs are looking for industry guidance on how to apply them
The following relates only to Private Equity firms based in Europe
- More than half of respondents reported having taken meaningful action in relation to ESG, including carbon offsetting, reduced air travel and reducing reliance on single use plastics
- Over 80% indicated that they promote diversity initiatives and encourage diversity at a portfolio company level, though many are yet to establish monitoring procedures.
Merrick McKay, head of European private equity, Aberdeen Standard Investments, commented: "The general trend suggests that private equity firms are regarding ESG as increasingly important, with firms based in Europe leading the way."
"There's still scope for improvement in terms of their ability to measure and monitor against key ESG-related metrics and this is something that we will be encouraging during our discussions with GPs. We are optimistic looking at results from firms based in Asia Pacific, with a number of respondents having implemented initiatives in the last year to improve ESG performance.
"ESG engagement in North America is lagging behind Europe and Asia Pacific and we will follow up with those GPs who either didn't respond or who scored poorly relative to their peers. ESG remains a core component of our investment philosophy and is incorporated into our diligence and monitoring processes."