Institutional investors have been urging more and more for private equity fund managers to adopt environmental, social and governance (ESG) protocols and integrate them into their investment practices. Last year a group of 40 private equity investors, 10 private equity firms and 20 trade associations came together to form the Environmental, Social and Corporate Governance Disclosure Framework for Private Equity that aims at catalyzing this process.
In a recent report from Institutional Investor, Andrew Malk, founder and managing partner of Malk Sustainability Partners, a La Jolla, California-based ESG consulting firm comments, “When applying ESG filters, GPs tend to look for risk mitigation and savings opportunities in companies they already own… That could mean finding ways to boost resource efficiency, reduce waste and cut down on packaging… More-sophisticated private equity firms ask for quarterly or annual sustainability reports, and some are adding filters to the company selection process.”
The asset class has been slower to adopt such initiatives compared to public equities and fixed income. The United Nation’s Principles for Responsible Investment will be releasing its first survey on ESG progress in private equity early in 2015.