Investors want to see ESG polices at private equity firms – at least in Europe. That's according to a new study conducted by London Business School's Coller Institute of Private Equity and supported by Adveq.
The study shows that ESG principals are now a core value creation strategy at private equity firms. The London Business School authors, Professor Francesca Cornelli and Dr. Ioannis Ioannou, find growing pressure from LPs is hastening the movement of ESG from being purely a compliance function to a key part of the investment process.
According to the data, nearly all – 85 percent of large firms in the survey say they are feeling pressure from LPs to integrate ESG policies into everyday day business process. The growing importance of ESG is also evidenced by the fact that firms say that they are now using ESG on purchase of portfolio companies, right through to exit. Only 26 percent of the respondents said that they implemented ESG policies only at the exit stage.
“ESG is no longer a box ticking exercise that occurs at sale time,” said Sven Lidén, managing director and CEO, Adveq. “Private equity companies are now integrating ESG policies at the early stages of the process, offering investors the possibility of superior returns.”
Still, significant barriers remain to the widespread adoption of ESG principles. Collecting the data necessary to fulfill ESG requirements is often difficult and becomes even harder to use when comparing projects against each other.
The findings were based upon a sample of 42 private equity firms, representing a broad geographic and sector focus and with a total of over $640 billion of assets under management.