LGT chief: US trails Europe in responsible investing

Prince Max Von Und Zu Liechtenstein said US fund managers have been slowest to adopt ESG ideas, with Germany a surprising laggard in Europe.

LGT Group's chief executive has said US fund managers have some way to go before they can match their European rivals in the adoption of environmental, social and governance principles.

“Unsurprisingly, the Scandinavians and Northern Europeans are in the lead,” the private bank and asset management firm's Prince Max von und zu Liechtenstein told Private Equity International in an interview at The Economist's Impact Investing Summit in London on Thursday.

“Germany is not as good as you’d expect, southern Europe is a little bit behind… And the US is clearly behind,” he said.

This view reflects the findings of a recent report by LGT Capital Partners, the fund of funds arm of LGT Group, which has $23 billion in private equity assets invested in primary funds, secondaries transactions, co-investments and listed private equity.

ESG Report 2017, which surveyed 184 fund managers across Europe, the US and Asia, saw a strong performance from fund managers in the UK, France and the Nordic countries, where 73 percent, 64 percent and 85 percent of asset managers respectively were rated in the top two of four attainment bands for ESG.

In Germany and Switzerland this figure is 36 percent, with only 9 percent of those managers falling within the top, 'excellent' bracket. The report cites a lack of pressure from institutional investors as the main reason.

Overall, 66 percent of European fund managers are rated in the top two categories for ESG, compared with 38 percent in the US. The US has seen little improvement since 2016, with the number of fund managers rated in the top two categories rising from 36 percent to 38 percent year-on-year. A “lack of guidance from investors” is cited as a key reason for the slow progress among US funds.

US managers are also outperformed by those from Asia, where the proportion rated excellent or good stands at 57 percent, a 12 percentage point increase on the last survey.

LGT Capital was an early adopter of ESG principles. It first introduced a responsible investment contract clause in 2003, which allowed it to exclude investments “substantially exposed” to any potentially non-ethical conduct.

It requires asset managers it works with to complete a due diligence questionnaire which is scored on four key measures: the extent to which the manager has demonstrated commitment to ESG; the formal integration of ESG into the investment process; the extent to which they have demonstrated active ownership through measures such as introducing ESG guidelines; and the degree to which they provide regular ESG reporting.

It then measures the managers across each category on a scale of one to four, from good to bad, with the expectation that poorly rated managers will improve if they want to keep managing LGT Capital's money.

“What is very important is that this intention to create a positive social and environmental impact is pushed from the top throughout the entire organisation,” Prince Max said.

“You have private equity firms that will exclude certain categories, certain industries and gravitate towards industries where they think there’s naturally a better footprint such as waste management, healthcare, education and the nutritional industry, where there is a tremendous amount of innovation.”

A manager the report cites as doing a particularly good job at ESG implementation is Apax, for its work on preventing underage workers entering the supply chain of one of its portfolio companies, German retailer Takko.