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Private equity managers raise their game in SI

Private equity managers raise their game in SI

19-09-2019 | Insight

More private equity fund managers are integrating sustainability, an annual study of Robeco’s investments in this arena reveals.

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

Speed read

  • Improved results from annual survey of 61 fund managers
  • Highest A+ rating achieved by 16%, while 55% received A
  • Climate change risk and diversity higher on managers’ agendas

The Robeco Private Equity ESG Report 2019, which is based on an annual survey of the 61 fund managers participating in its engagement program, shows that not only are more managers embracing the integration of environmental, social and governance (ESG) factors into their investment process, but also that they are improving their from year to year. 

The responses provide valuable insights into the status of ESG integration, ranging from reputational risk and diversity, to impact reporting to climate change risk management. The latest survey indicates that the ESG performance of managers in the program has substantially increased, with a median score of 85%, up from 69% in the 2018 survey.

Overall, 16% of the participants received the highest rating (A+), indicating leadership in their ESG approaches. The year-on-year results are shown in the table below 

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Source: Robeco Private Equity, PRI

Diversity is an issue

Diversity has climbed higher on the agendas of policymakers, academics and practitioners, including investors in private equity. Even though diversity is inherently multi-dimensional in nature, the discussion in private equity is mostly focused on one of its dimensions – gender. The proportion of women working in private equity firms is much lower when compared to the broader asset management industry, and even lower when compared to other industries, research by the accounting firm KPMG shows.

Only 17.9% of private equity employees worldwide are women – the lowest figure of any alternative asset class, and one which is unchanged from 2017. Less than one in ten (9.9%) of senior roles at private equity firms are occupied by women, and just 5.2% of board members are female, up from 4.1% in 2017. 

Increased awareness for the lack of diversity and the growing number of initiatives identified in the report are expected to bring change over time. The industry has called on general partners of private equity firms have general partners of private equity firms to expand the pipeline of women in recruitment, and integrate diversity aspects in the hiring process through university level internships, among other initiatives.

Impact and SDG reporting

Meanwhile, private equity fund managers and their companies are increasingly committing to contributing to the United Nations Sustainable Development Goals (SDGs). Launched in 2015, the 17 goals range from eradicating world hunger and reducing global warming, to improving health care, technological access and educational standards in emerging markets. 

Despite the inherent difficulty of obtaining quantitative data on impact, more managers have reported the impact of their companies and their contribution to the SDGs this year. The most commonly reported SDGs in the fund managers’ impact or sustainability reports are SDG 7 (affordable and clean energy) and SDG 12 (responsible production and consumption). 

Tackling global warming

Climate change awareness among private equity fund managers is on the rise, and a growing number of initiatives urge them to act on the risks and opportunities that climate change brings. Almost one third of the private equity fund managers under engagement have a responsible investment policy in place which covers climate change risks and opportunities. 

Many managers are now undertaking climate-related activities such as targeting low carbon or climate resilient investments. However, it seems that there is room for improvement, since many of the 70% of managers who believe that long-term risks and opportunities arise as a result of climate change are not yet undertaking any action to manage these risks. 

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