Case study by USS Investment Management 

Deep-dive monitoring 

USS, the UK Universities Superannuation Scheme, aims to assess thoroughly its GPs on ESG issues on a regular and ongoing basis, typically every three years. USS conducts such monitoring because it wants assurance that ESG issues are being managed by its GPs, and to encourage improvement in ESG performance.

The monitoring process begins with research by a member of the USS responsible investment (RI) team into the portfolio companies or other assets in which the GP has invested. The research identifies relevant ESG risks or opportunities that can be interrogated further with the GP to understand whether and how they have engaged with portfolio companies on these issues. A member of the USS RI team meets with representative members of the GP and questions the processes, actions and outcomes associated with the management of ESG issues within the portfolio. USS carries out these assessments within the context of the LP/GP relationship, where the GP has ultimate responsibility for investment decisions and its portfolios. As a result, USS is not involved in managing issues at a portfolio or asset level.

Over the years, USS estimates it has applied this monitoring process to funds representing approximately 90% of the capital that it has invested in private equity. The information collected during monitoring helps inform USS’s future allocation to funds offered by the same GP, as this data is factored into the due diligence process.

To aid with both due diligence and ongoing assessment, USS has developed an internal databank of questions on ESG topics to maximise the effectiveness of meetings with GPs and the use of USS’s time spent on research and preparation. This eight-page document covers the broad range of ESG issues.

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    ESG monitoring, reporting and dialogue in private equity

    June 2018