LPs raise the ESG bar

GPs have made vast strides within the realm of responsible investment in the last decade. The focus is now on LPs to raise the bar again.

This year marks the 10th anniversary of the launch of the United Nations-supported Principles for Responsible Investment (PRI), and thanks to both this initiative and a push from investors, the private equity industry has made huge strides within the responsible investment arena in the last decade.

In Private Equity International’s Responsible Investment Special published alongside February’s magazine, we discuss how managers have responded to – and in some cases surpassed – the challenge laid down by investors to develop stronger ESG policies and reporting methods.

“Once the industry gets going, it really gets going and many managers have since stepped up and developed their responsible investment approach,” said Ellen de Kreij, ESG implementation lead for Apax Partners.

However, it shouldn’t stop there. “Pretty soon the LPs will need to raise the bar again. Now that they’ve seen that the industry is responding, [they need] to say, ‘This is where we would like you to go next with your ESG approach,’” de Kreij said.

Mark Goldsmith, a former director in the responsible investment team at emerging markets specialist Actis, has recently set up Fiveoak Consulting to provide sustainability services to the financial services sector. He agreed that, unlike in recent years, the push now is to engage more LPs.

“The LPs were instrumental in taking the lead – and you can see that with the sign-up to the PRI – and now I think some of the GPs are keen to take the initiative and are really committed to this,” he said. “One of the focuses [the PRI has] for this year is to encourage more LPs to sign up.”

Events in the wider market in 2015 are galvanising factors for LPs, said Goldsmith, from the COP21 climate conference in Paris and the agreement of the UN Sustainable Development Goals to scandals including Volkswagen’s emissions tests and corruption at Brazil’s state oil company Petrobras.

Marleen Groen, senior advisor to StepStone and director at impact manager African Wildlife Capital, also sees the progress made at the Paris climate conference as an additional driver for LPs beyond responsible investment and toward social and conservation impact investing.

“Institutions such as public pension funds and family offices have been sticking their heads together to try to figure out how they can invest in appropriate social and conservation impact funds and what the right fund parameters need to be,” she said.

Read more about changes in the ESG landscape in our upcoming Responsible Investment Special out on 1 February.  PEI is also hosting its 7th Responsible Investment Forum in London on May 25-26. Click here for full details of this can't-miss event.