Private equity managers show progress in ESG integration

Private equity managers show progress in ESG integration

08-09-2017 | Insight
Private equity managers increasingly integrate sustainability into their investment process, the latest engagement report has found.
  • Silva Dezelan PhD,
    Dezelan PhD,
    Director Sustainability, Private Equity

Speed read

  • Annual report shows success in engagement with managers
  • 95% now have a responsible investment policy in place
  • Reputational risk of portfolio companies remains limited
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An annual assessment of the adoption of environmental, social and governance (ESG) principles by Robeco Private Equity shows further progress in making private equity funds more sustainable. The results are published in the ESG Engagement Report 2016 which details the activities of the managers of the funds that Robeco Private Equity has selected for its institutional products and mandates.

Engagement with privately owned companies is different from listed entities because private equity funds typically own them outright rather than being one of many small public shareholders. It means the ability to influence them can be greater, though private companies tend to have fewer resources with which to implement ESG than big listed firms, and transparency can be an issue for some. Robeco Private Equity engages with the fund managers and encourages them to exert their influence over the companies they own.

Steady improvement

“The assessment of their ESG efforts in 2016 reveals improvement in both the average and the median ESG scores for the program as a whole,” the report says in its introduction. “Compared to a year ago, more private equity managers in our ESG program (95%) now have a responsible investment policy in place, and many of them also define ESG objectives and include ESG matters in their fund formation documents. This is an improvement compared to 87% a year ago.”

“The number of managers who are monitoring whether their portfolio companies have the relevant sustainability policies in place increased further in 2016, and 74% of them now monitor at least part of their portfolio. While the percentage of managers that disclose information on ESG to the public remains below 15%, we have noticed that an increasing number of them are disclosing more specific and detailed information on the environmental and social impacts of their portfolio companies.”

UNPRI tools

The results are based on the annual assessment performed by Robeco Private Equity who uses the reporting and assessment tool developed by the UN Principles for Responsible Investment (PRI) for this purpose. More investors in the private equity world are now signing up to the PRI and its goals.

“Public commitment to the PRI seems to have a positive impact on the ESG efforts of the private equity managers, as we again found that the PRI signatories in our program outperformed the non-signatories,” the report says.

“Relative to the broader PRI universe of private equity managers, the participants in our program show less involvement in different industry initiatives and are less inclined to act upon the sustainability-related long-term trends. Our program’s bias towards the lower mid-market buyout and resource efficiency-focused managers, who typically have less resources available for such initiatives, can partly explain the difference in scores.”

Cutting risks

The report includes analysis of ESG alerts and incidents in the portfolio companies using RepRisk, a specialized media-search tool used to highlight breaches of the principles. For many investors, sustainability is fundamentally about cutting risk, and the analysis indicated that 7% of the companies owned by the managers in Robeco Private Equity’s engagement program faced limited exposure to reputational risk due to ESG-related issues in 2016.

These companies are most often active in the food production, fashion and retail industries, the sectors that are more susceptible to such risks. Supply chain issues, violations of national legislation and product recalls are some of the most common issues encountered.


The report also discusses carbon emissions and the decarbonization efforts of private equity managers, since both have increasing prominence in attempts to combat climate change. The importance of portfolio decarbonization and good supply chain management were the main themes of the May 2017 round table with private equity managers in Rotterdam.

The final chapter covers impact measurement and following the UN’s Sustainable Development Goals – a challenging area for smaller private firms since many don’t have the tools available to assess progress. However, it is leading to verifiable improvements particularly in clean technology and resource efficiency-focused portfolios.

“Our latest ESG survey and assessment results provide a number of insights that will be used in our dialogue with managers in our ESG program,” the report says. “We believe in engagement with private equity managers and will continue monitoring their ESG efforts on an annual basis while focusing our discussions with them on more specific ESG topics in the future.”

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