There are several reasons for the recent momentum in responsible investment within private equity. Firstly, Limited Partners (LPs) are asking General Partners (GPs) to integrate environmental, social and governance (ESG) issues. Secondly, due to regulatory changes, the economic downturn and public scrutiny, the industry is under pressure to demonstrate that it is a responsible member of society in order to gain access to capital markets. Thirdly, there is a renewed focus on adding value to portfolio companies and ESG integration is a key way to do this.
Private equity is highly conducive to responsible investment because of its relatively long-term horizon; the typical holding period for a portfolio company is 3-7 years. In principle, private equity firms have influence over company management and are therefore able to promote ESG initiatives at the company level.
While there is momentum for responsible investment in private equity, LPs and GPs face a number of issues and challenges. How can LPs and GPs effectively engage with one another? How do you develop processes for ESG integration into the investment analysis and decision-making and ownership activities? What is the value of ESG integration?
About the work stream
The work stream was launched in 2008 with a handful of General Partners (GPs) and Fund of Funds (FoFs) and today is one of the PRI’s most mature, with over 240 GPs and FoFs and more than 160 Limited Partners (LPs) as members. The work stream brings together leaders and those new to the industry to collaborate, engage in debate and develop resources to support private equity investors wanting to implement responsible investment practices.
The PRI work stream is advised by a signatory Advisory Committee. The PRI has launched an open call to signatories to apply for four open positions, effective from the start of 2016. Find out more on how to apply – the deadline is Monday 12 October 2015. For the list of current Committee members, click here.
The PRI has launched a public consultation on the drafted PRI Limited Partners Responsible Investment Due Diligence Questionnaire, a list of ESG due diligence questions that LPs could ask GPs pre-commitment. Click here for more information. The public consultation will run until Friday 4 September 2015.
Resources listed may require PRI signatory extranet access.
- Integrating ESG in private equity: A guide for general partners (also available in French) and Case studies supplement – a short summary is also available (April 2014)
- The integration of ESG issues in M&A transactions: Trade buyer survey results (January 2013)
- Responsible investment in private equity: A Guide for limited partners, 2nd edition (June 2011)
- Responsible Investment in Private Equity: Case Studies, 2nd edition (December 2009)
Case studies published by the PRI
Publications supported by the PRI
- ESG Disclosure Framework for Private Equity (March 2013)
- Introducing the new CDC ESG Toolkit for Private Equity Fund Managers (July 2015)
- International guidance framework: responsible investment for general partners (December 2011)
- Private equity and corporate governance (August 2011)
- Climate change and private equity (May 2010)
- An overview of “RI in Private Equity: A Guide for Limited Partners” (January 2010)
Previous PRI in Person sessions
- Reporting on ESG in private equity (September 2011)
- Responsible investment in private equity (October 2010)
- ESG moving out of the Compliance Room and into the Heart of the Investment Process, Francesca Cornelli, Ioannis Ioannou and Thomas Zhang, LBS Coller Institute of Private Equity (February 2015)
- ESG in Private Equity: A Fast-Evolving Standard, Bowen White, Claudia Zeisberger and Michael Prahl, INSEAD Global Private Equity Initiative (May 2014)
- The Price of Unsustainability: an experiment with professional private equity investors, Patricia Crifo, Vanina Forget and Sabrina Teyssier (August 2012)