A new guidance from the Principles for Responsible Investing (PRI) and the Environmental Resources Management (ERM) organisations examines and builds the business case for environmental, social and governance (ESG) monitoring, reporting and dialogue within the private equity sector.
The report states that the aim of the guidance is to support an exchange of information, underpinned by dialogue, that will keep LPs informed about the ESG characteristics of their private equity investments and the responsible investment practices of their investment managers.
The authors worked with over 60 organisations to arrive at its Principles, writing that as institutional investors, the industry has a duty to act in the best long-term interests of its beneficiaries.
“In this fiduciary role, we believe that environmental, social, and governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society.”
The report establishes six principles for ESG issues: they will be incorporated into investment analysis and decision making processes; investors will be active owners and incorporate ESG issues into ownership policies and practices; investors will seek appropriate disclosure on ESG issues by the entities in which they invest; investors will promote acceptance and implementation of the Principles within the investment industry; investors will work together to enhance their effectiveness in implementing the Principles and, finally, they will each report on activities and progress towards implementing the Principles.
Commenting on the publication, Anders Strömblad, Head of Alternative Investments, AP2 and chair of PRI’s Private Equity Advisory Committee, says: “The launch of this monitoring and reporting guidance is a huge step forward for the integration of ESG throughout the investment process. It will help to establish best practice for the private equity industry and will benefit managers, investors and beneficiaries.”
“For PGGM, it is important to understand how our GPs are integrating ESG into their investment processes and to report this back to our clients – pension funds. We want to beat market rate returns and also help build more sustainable businesses with less negative and more positive impacts on the world. This is our goal and we rely on our GPs to get there. They are great partners, we can learn a lot from them and we think it’s an exciting challenge for all to achieve,” says Jelena Stamenkova van Rumpt, Senior Advisor Responsible Investment, PGGM Investments.