More than 230 delegates gathered in New York this week for Private Equity International’s third annual Responsible Investment Forum New York, co-hosted with the UN-sponsored Principles for Responsible Investment, to talk latest trends and share best practices in ESG, corporate social responsibility and impact investment.
Here are some of the major themes that came to the fore.
1.Data is key
This is “the age of data”, but the quality of that data, particularly with regards to ESG, still leaves a lot to be desired. The overwhelming impression from the forum is of an industry grappling with how best to aggregate, integrate and use meaningful data related to ESG.
Not only can metrics differ across geographies, sectors and companies, making it difficult to develop proper benchmarks, but a lot of the information coming in is still anecdotal rather than hard numbers. What’s more, the definition of ESG keeps expanding – most recently, many firms have started to include cybersecurity under its umbrella.
“We’re going through this transition of the anecdote to the data-driven, but it’s a pretty uncomfortable and awkward adolescence right now,” said one panellist.
In his keynote speech, City of Chicago Treasurer Kurt Summers pushed delegates on transparency, questioning why general partners – as owners of private companies – have difficulty with data disclosure.
“You have the ability to really dictate everything from A to Z, have complete transparency and insight into data that we can’t even get into public companies; you have the ability to influence outcomes,” he said.
While panellists agreed data collection, analysis and reporting is not an easy job, LP attendees were not letting managers off the hook.
“It can be complicated,” one LP said, “but life’s complicated.”
2. Diversity is front of mind
Diversity and inclusion was brought up during virtually every panel, whether it was meant to be on the agenda or not. This gives an indication of quite how much this topic is front of mind for limited partners and, by extension, for fund managers. Panellists offered advice on boosting diversity ranging from accepting blind résumés – submitted with the candidates’ names, gender and ethnicity redacted – during the hiring process to pushing back on recruiters who say diverse hires are too hard to find.
The one thing all delegates agreed on? This needs buy-in from the top.
What’s more, the private equity firm itself has to lead by example with a “stated commitment to diversity and inclusion within your own firm” before beginning to engage portfolio companies, one panellist said.
“You may have not made all the progress that you wanted to make, but at least demonstrate that you as a firm are taking this seriously and then are expecting that kind of commitment by your portfolio companies.”
3. There’s confusion around impact investment, but it’s not going away
Impact investment has as many definitions as there are investors interested in pursuing it, leading to much confusion in the private equity industry at large. It not only crosses asset classes but risk and return profiles, with some GPs seeking the same returns from their impact funds as from their mainstream private equity vehicles and others comfortable with somewhat lower returns.
It may be hard to pin down, but one thing’s for certain: impact investment is here to stay.
Societal changes, such as the ubiquity of information bringing greater scrutiny on portfolio company practices, means businesses need to act differently, and there’s “no going back”, one panellist said, pointing out that most innovation today is happening around companies delivering a positive impact, whether that be start-ups or incumbents.
“Look at any vertical and see: what is innovation about? It’s treating your employees better, it’s energy efficiency, it’s better products, quality of services; it’s transparency in your supply chains. That’s the new normal.”
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