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