Robeco Private Equity publishes 2018 ESG Engagement Report

Robeco Private Equity publishes 2018 ESG Engagement Report

28-08-2018 | Insight

ESG integration is gaining more traction in private equity. Robeco’s latest Private Equity Engagement Report concludes that fund managers in the company’s private equity ESG Program have taken further steps to embrace ESG factors and integrate them into their investment processes.

  • Silva Dezelan PhD,
    Dezelan PhD,
    Director Sustainability, Private Equity

Speed read

  • Annual survey shows further integration of ESG factors in private equity
  • Positive trend will persist supported by advancement of significant ESG initiatives
  • Results are encouraging while potential for further progress remains
Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates

“If we look at the activities of PE fund managers in the last year, we can conclude that ESG factors have become further integrated into their investment process.”, states the report in its introduction. Recommendations by the Financial Stability Board’s Task Force on Climate Related Financial Disclosures, the adoption of the European Commission’s Action Plan on Financing Sustainable Growth and the publication of a guidance document on ESG Monitoring, Reporting and Dialogue in Private Equity by PRI suggest that this positive trend will continue.

In the twelfth edition of the ESG Engagement Report1 Robeco Private Equity documents the activities of PE managers that are part of its ESG Engagement Program.

Stable overall ESG scores

2017 was a year in which General partners (GPs) continued to strengthen their ESG integration in investment, monitoring and reporting practices which has translated into stable overall ESG scores.

The average ESG score for the 63 fund managers that participated in last year’s survey was 69%, compared to 66% in 2016 and 59% in 2015. Meanwhile, the median ESG score stands at 69%, versus 69% in 2016 and 64% in 2015. These figures indicate that most fund managers now have functioning ESG frameworks in place.

ESG integration in private equity is becoming more mainstream

The results are based on an annual assessment by Robeco Private Equity that uses a reporting and assessment tool developed by the UN Principles for Responsible Investment (PRI). A growing number of investors in the private equity world are now signing up to the PRI and its goals.

Low reputational risk

The reputational risk of private equity portfolio companies monitored by Robeco Private Equity remains relatively low. The analysis of ESG-related news stories and alerts by RepRisk2 shows that the majority were not involved in any ESG-related incidents. Those that received negative media attention experienced relatively low impact and coverage. To increase awareness of ESG issues and encourage better communication, Robeco Private Equity continuously engages with fund managers whose portfolio companies have had to deal with incidents.

Increased commitment to UN SDGs

In their role of active owner of portfolio companies and the extended control this entails (compared to public companies), the PE managers are in a good position to promote the UN Sustainable Development Goals (SDGs3).

In 2017 the number of PE fund managers that committed to contributing to these SDGs increased further. In terms of the contribution to specific goals, most portfolio companies contributed to SDG 7 and SDG 12, which relate to sustainable energy and sustainable consumption and production.

Despite the increasing focus on SDGs, the report also recognizes that SDG-related and impact reporting is still in its infancy and most of the managers first need to develop consistent ESG reporting frameworks.

Monitoring climate-related risks

An analysis of how PE managers currently manage climate-related risks and opportunities also indicated that half of the respondents have already incorporated climate-related risks and opportunities into their investment strategy and process in some way. In addition, 38% of the fund managers have integrated their process for climate-related risks into their overall risk management.

However, only 24% of managers currently engage with their portfolio companies to encourage better disclosure and practices relating to climate-related risks. The survey results also showed that only about one-fifth of managers currently use emission data or analysis in investment decision-making. These percentages show clear potential for improvement.

About the Robeco Private Equity ESG Engagement Program

Robeco Private Equity’s ESG Engagement program, introduced in 2014, aims to encourage private equity fund managers to implement ESG best practices in their investment process. Through its ESG activities, which have been recognized by the PRI with an A+ rating, Robeco Private Equity aims to draw the attention of PE managers to ESG issues and assist them in their efforts.

As part of the program, private equity fund managers undergo an annual ESG assessment which serves as input for dialogue on potential improvements. Robeco Private Equity’s ESG engagement program strives to contribute to improving the risk-reward characteristics of client portfolios and enhance the added value of private equity fund managers.

1 Please note that we have changed the year referencing in the title of our annual ESG engagement report. The data that fund managers reported to us relate to the end of calendar year 2017, but the report was written and published in 2018. Henceforth the year of publication will therefore be recorded in the title of our annual ESG reports.
2 RepRisk, a leading business intelligence provider specialized in environmental, social and governance risk analytics to monitor the reputational risk of portfolio investments.
3 SDGs represent the global sustainability agenda for 2030 and provide a systematic framework for dealing with the most pressing social and environmental challenges globally.

Subjects related to this article are:

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.

I Disagree