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Limited Partners Require Private Equity to Prioritize ESG

According to Harvard Business Review:

ESG is becoming more important to limited partners and their beneficiaries. The largest asset owners—among them pension and sovereign wealth funds—are increasingly concerned about the system-level effects of climate change and inequality.”
 
HBR goes on to share that:
  • 90% of LPs factor ESG into investment decisions
  • 77% use ESG specific criteria when selecting general partners
In the past ESG may have been a box-checking exercise for both LPs and GPs, but that is changing.
 
HBR cites a great example where an LP has put a stake in the ground:
 
Dutch pension fund APG has invested $36B across 75 general partners. They score GPs each year on a 0-100 ESG scale using 30 specific questions. No minimum score is required to maintain the investment. Instead, APG requires all GPs to:
 
  1. Take part in the annual survey
  2. Document action plans for how they intend to improve their ESG score
Failure to hit these 2 criteria puts future fund allocation in jeopardy.
 
This is the new standard operating procedure for private equity:
  • More frequent ESG data requests from limited partners
  • Need for action plans that detail how individual PortCo's will improve on ESG metrics.
US based private equity firms should expect this approach from their limited partners. Learn more on how to adapt in An Analysis of PE Firms leading the way on ESG & impact.
 
Here's a preview:
 
You need to maximize ESG data across the full deal lifecycle.
 
How?
 
Adopt the On-Demand Impact Transparency Framework by Corecentra.
 

Contact us today to learn more about On-Demand Impact Transparency.

By the way, it’s not only the LPs that care about ESG. The companies you are looking to acquire are also prioritizing ESG. And they looking for private equity partners that can help. More on that in Portfolio Companies demand an ESG focus

The Harvard Business Review article referenced herein can be found here