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 principal, 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 130 GPs and FoFs and more than 130 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.
Signatories can get involved in the Private Equity work stream by joining a working group. Working groups undertake projects in several areas of interest, including the analysis of market practices and the development of implementation support tools. Currently, there is one active working group:
GP Guide Working Group: the objective of this working group is to develop a guidance document for GPs on how to incorporate ESG considerations in their investment processes. The document will also help LPs understand what they can expect from their GPs. The PRI has selected a partner, Spring Associates, to develop the guide. The working group will act as an advisory group throughout this process, steering the direction of the research and advising on industry sources.
Resources listed may require PRI signatory extranet access.
- Integrating ESG in private equity: A guide for general partners and Case studies supplement (April 2014)
- ESG Disclosure Framework (March 2013)
- 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)
- 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)
- Investing in frontier markets
Previous PRI in Person sessions
- Reporting on ESG in private equity (September 2011)
- Responsible investment in private equity (October 2010)
- 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)