Responsible investment: Aligning interests

What’s driving responsible investment?

Does investing responsibly add value?

A “yes” or “no” answer hangs on the results of the ESG assessment

Responsible investment is rapidly becoming a mainstream concern within the investment industry. The dramatic growth in the number of investors who have adopted the Principles for Responsible Investment (PRI) is only the latest indicator of the increased attention the sector is paying to the integration of environmental, social and governance (ESG) factors into investment management.

Responsible investment (or ESG management) is an influential component to decision making for LPs and GPs alike. It’s based on the belief that addressing ESG issues will protect and enhance portfolio returns, especially over the longer term. Responsible investors may choose to exclude entire sectors they consider unsustainable or unethical, or they may seek out companies with better ESG performance than their peers.

Business as usual and ESG are becoming increasingly linked. We see increasing awareness and reporting of ESG issues from our GPs.

Ardian, France

Much has been said about fund managers (the General Partners) and their views on environmental, social and governance (ESG) issues when managing funds (PwC’s Putting a price on value). But what about the investors (the Limited Partners)? How do investors view responsible investment and ESG management? And how in sync are the LPs and GPs?

With 88% of LPs in our survey believing that there is added value in responsible investment, there’s a collective need for LPs and GPs to adopt an approach that works for both.

Here we explore the investors perspective, e.g., the Limited Partners who chose which funds they’ll invest in; touch on their relationship with fund managers, e.g., the General Partners; and work through ideas on ways to align the interests of the two.

The trend in the market seems clear. Asset class after asset class has been added in terms of ESG considerations. Now we can see increased interest and commitment in the private equity sphere, although much remains to be done.

AP6, SwedenSixth Swedish National Pension Fund

Highlights:

  • 97% of LPs believe responsible investment will increase in importance over the next two years
  • 83% believe that better management of ESG factors will either improve returns or reduce risk, meaning that ESG management is part of their fiduciary duty
  • 19% of LPs currently attempt to quantify the impact of their GPs’ responsible investment efforts
  • 18% of LPs have withdrawn from an investment or withheld capital on ESG grounds

Contact us

Phil Case
Private Equity Sector Lead for Responsible Investment
Tel: +44 207 212 4166
Email

Sylvain Lambert
Partner, France Sustainability Lead
Tel: +33 1 5657 8083
Email