Diversity not a priority as ESG makes gains

Just over a third of private equity managers consider diversity in their investment processes, according to LGT Capital Partners' ESG Report 2019.

The last year has seen strides in the adoption of environmental, social and governance principles, though not everywhere, according to a report by LGT Capital Partners.

The percentage of firms rated poor for ESG adoption stands at 14 percent globally, three percentage points down on last year and 29 percentage points down on 2014, according to the firm’s ESG Report 2019. The proportion of firms achieving ‘excellent’ or ‘good’ ratings rose 7 percentage points to 65 percent.

Diversity, featured in the survey for the first time this year, is lagging other aspects of ESG. More than half of respondents do not have a diversity policy and two-thirds do not consider in at all in their investment processes.

Speaking at industry body Invest Europe’s CFO Forum in Valencia on Tuesday, chief operating officer of mid-market focused Agilitas Private Equity Debojit Mukherjee said it was difficult to maintain a standardised diversity framework across a portfolio due to individual differences in assets.

“Nurse-led care is very heavily female and we have a business called Recover Nordic, which does damage control, which is very male-skewed,” he said. “It will vary and you need to pay attention to why you’re setting particular KPIs around diversity. There are some countries where you can’t report on diversity [for legal reasons].”

Paul Cunningham, chief financial officer of Africa-focused private equity firm Helios Investment Partners, also attested to the limitations of a standardised approach to monitoring diversity.

“We fill in diversity questionnaires for US investors and actually score remarkably badly because we can’t tick their boxes,” he said. “For example, in our firm we don’t have any African-Americans. We have Nigerians, Cameroonians and Kenyans but no African-Americans.”

The report also found the US has had the strongest year-on-year improvement in ESG implementation. The proportion of American firms assigned the top two ratings went up by nine percentage points year-on-year, hitting 49 percent. After a drop-off in 2018, the percentage of Asian managers rated good or excellent also rebounded, hitting 59 percent.

Larger managers are much more likely than their smaller counterparts to be highly rated for ESG adoption. None of the “mega-managers” have been assigned the poor rating in this year’s report, versus 17 percent of small managers and 15 percent of mid-market ones.

The report was based on a sample of 218 private equity managers in LGT Capital’s portfolio.