PE lags other asset classes in sustainable opportunities

Private equity offers fewer quality sustainable investing strategies and managers to choose from than most other asset classes, according to research from Morgan Stanley.

Just 36 percent of asset owners have identified these opportunities in private equity, compared with 65 percent in public equities and 50 percent in real assets, the investment bank’s Sustainable Signals report found. The bank surveyed 118 large global institutions including public and private pensions, endowments, insurance companies and sovereign wealth funds.

ESG has risen up the agenda in recent years. Private equity managers are the largest single group of asset managers among the more than 1,800 signatories of the UN-supported Principles for Responsible Investment.

Almost two-thirds of asset owners have been integrating ESG for less than four years, the Morgan Stanley report noted. Risk management, return potential and mission alignment were considered the most important factors driving sustainable investing adoption.

A growing number of firms are launching impact funds in recognition of LP demand for sustainable investments. KKR is understood to be in market with its debut impact vehicle, while Partners Group is seeking up to $1 billion for a cross-asset fund targeting deals in line with the UN Sustainable Development Goals across private equity, real estate, debt and infrastructure.