Senior Affiliate Professor of Entrepreneurship and Family Enterprise
Corporate Governance; Auditing, Risk Control and Performance; GPEI; GPEI-Publication
Report | September 2014
The ability of private equity firms to manage environmental, social and governance (ESG) investment considerations in their portfolio companies has received increased attention of late. Private equity firms on the fundraising trail are not the only GPs 1 cognizant of this trend ; cost - savings potential, competitor activity and regulation all contribute to the rising awareness of ESG factors in investment committee decision - making.The focus on ESG considerations has developed alongside investors’ growing appreciation of the impact that nonfinancial factors can have on value creation, long - term company performance, and the health of society at large. Over the past half - decade, this rising level of awareness has bee n spurred on by several organizations and industry bodies that have developed guidelines o n best practice. The United Nations - supported Principles of Responsible Investment (UNPRI) , drafted by an international network of investors , provides a framework for incorporating sustainability and ESG management best practices into investment decision s and ownership practices across asset classes.In coordination with the UNPRI, the Private Equity Growth Capital Council (PEGCC) developed Guidelines for Responsible Investment focusing on environmental, health, safety, labor, governance and social considerations specifically in the context of private equity investment. The UNPRI and PEGCC guidelines combined with internal responsible investment policies often provide the foundation for a GP’s ESG framework. After conversations with LPs and GPs on the subject, the time was right to share a collection of case studies and offer a bird’s - eye view of the processes employed by a selection of leading private equity GPs.Detailed 3 - page “ snapshots ” showcase the frameworks each has developed to address ESG across their organizations. These were compiled directly from interviews and conversations with the professionals responsible for ESG at each firm . While presented in a consistent framework , they are largely verbatim accounts . As the first publication related to ESG, this report establishes a base for our ongoing work on ESG in the private equity industry. The authors trust that it will provide a practical guide and food for thought for private equity professionals – both GPs and LPs – looking to develop a robust understanding of the current approaches to managing ESG investment considerations in portfolio firms.This paper is published with the express desire to engage more GPs in discussions as they develop their capabilities related to ESG . The authors look forward to continued engagement with and input from the industry.