New study reveals rise of ESG among private equity GPs – yet obstacles remain

An overwhelming majority (88%) of private equity investors plan to step up their efforts to manage and measure ESG performance in their portfolio companies over the next two years yet almost half (46%) are concerned that by using their own ESG scoring methodologies they leave themselves open to accusations of greenwashing.

Intertrust, a global leader in providing tech-enabled fund and corporate solutions, interviewed around 150 private equity fund managers across Europe, North America and Asia to identify the risks and opportunities facing the private equity industry in the coming 12-24 months.

GPs highlighted the three biggest obstacles to implementing ESG programmes at a portfolio company level as quantifying and monitoring their impact; cost and resource constraints; and managing multiple sources of ESG data.

Underlining the complexities involved in the process, GPs predict that it will take over five years before they can produce standardised ESG data across their portfolio companies.

According to Intertrust, this will put the onus on tech-enabled service providers to deliver flexible solutions that can provide independent ESG assessments and benchmarks as well as offer GPs flexibility in adhering to different standards that are constantly changing.

While the majority (54%) of respondents believe they will ultimately benefit from a greater focus on ESG over the coming two years, a sizeable minority (32%) are pessimistic about what they will receive in return.  Moreover, only 27% believe that the coronavirus will lead to a greater focus on ESG investing as the role of business in society comes under increasing scrutiny.

Chitra Baskar, Global Head of Funds at Intertrust, said: “GPs are expanding their measurement of ESG behaviours within each of their portfolio companies due to investors seeing correlations between excess returns, sustainability, diversity and equality, to name a few.”

“Although support grows for the Principles of Responsible Investment (PRI), regulators have yet to agree on independent reporting standards. Without these standards, private equity remains subject to greenwashing accusations. This pressure underlies GPs support for their portfolio companies and their ESG impact reporting.”

To download the full Global Private Equity Outlook 2020 report, please click here.

^*Research was carried out in April 2020. A total of 143 responses were gathered via an online survey of private equity fund managers across Europe, North America and Asia.