Private Equity Must Make ESG Strategy a High Priority
August 22, 2022
Private Equity Must Make ESG Strategy a High PriorityDownload Article
This article from Private Company Director was published August 1, 2022. The entire publication is available at: https://www.privatecompanydirector.com/features/private-equity-must-make-esg-strategy-high-priority
Environmental, Social and Governance (ESG) and sustainability has evolved from a niche “trend” into a seismic culture shift embraced by the global business community as a defining metric of success. Performance indicators on ESG factors now appear alongside traditional financial indicators as a core component in assessing the fundamental performance and value of portfolio investments.
Private equity funds (particularly midcaps in the U.S.) are still wrapping their heads around the broader implications of ESG commitments, with many choosing to adopt reactive tactical changes instead of fully committing to a comprehensive ESG strategy. However, a day will come when ESG data will be requested from a limited partner or the fund gets labeled as a laggard in sustainability and will have to rush to make reactive and possibly ill-advised program changes. Funds would do well to begin reasonably developing their ESG strategies now, starting with two practical ways.
The first step is for funds to make proactive (rather than defensive) policy and process enhancements in their existing portfolio strategies, aligning new or existing ESG policies to their overall investment strategy. The second step is to actively assist their portfolio-level management in the design, enhancement and implementation of their respective ESG programs. While these changes may not push the fund to the front of the line on ESG, they should help to ensure that the fund is not punished for being a laggard on matters of sustainability.
Reprinted from privatecompanydirector.com, August 1, 2022 © MLR Media