LPs: ESG is non-negotiable

The message coming from investors at the seventh annual PEI Responsible Investment Forum in London this morning was clear: ESG is no longer negotiable.

Speaking on a panel at the forum, Anders Stromblad, head of external managers at AP Fonden 2, the second Swedish national pension fund, said the fund would not be doing its fiduciary duty if it were to fail to take ESG issues into consideration when evaluating managers.

“We put a lot of effort [into] manager selection. In fact, we will not invest in a manager if they don’t take ESG into consideration,” Stromblad said.

Kathleen Bacon, managing director at HarbourVest Partners, who was also speaking on the panel, agreed.

“It is definitely part of our manager selection,” she said. “If we thought that somebody was not, in principle, practising good governance or looking at the social impact of their businesses, we would not invest.”

Bacon told delegates that the incorporation and promotion of ESG could help to attract more capital to alternative asset classes. “Can ESG help establish this asset class as good fiduciaries and good responsible investors that are making an impact?” she asked. 

Bacon said she saw a big variation in which investors, geographically, are taking ESG more seriously. “Europe…is probably 10 years ahead of any market,” she said, noting that while smaller managers in Europe have in the main adopted ESG principles, the same cannot be said for the majority of venture capital funds in the US.

Although LPs play a pivotal role in “pulling” ESG considerations into the system in alternative assets industries, Bacon said, “without the governments pulling as well, 100 percent adoption is going to be difficult to get in this industry.”