A concerted effort by private equity firms to place more emphasis on responsible investment practices is expected in the next five years, new findings show.
Research from accountancy firm PricewaterhouseCoopers (PwC) reveals that 88 per cent of firms questioned expect action on environmental, social and governance (ESG) issues to increase over the period.
The principal worry of the private equity firms regarding responsible investment is investor concern. Many admit that while an effort has been made to boost progress in the measurement, reporting and evaluation of responsible practices, there is still a way to go in terms of ESG strategy.
Malcolm Preston, global lead for sustainability and climate change for PwC, comments, ‘It’s not surprising that only a handful of PE houses have found a way through this complex area. The challenge is for the rest to keep up with this pace, because expectations are only going to get higher.’
Of those saying that progress on ESG management is an issue, the problem of a lack of internal capacity and expertise is shown to be the most frequent explanation.
Some 20 per cent of firms have put systems in place to measure value created from ESG activities, while 47 per cent do not report publicly on ESG programmes.
Despite the low figures, 94 per cent say that ESG activities can create investment value such as cost savings or enhanced reputation.
Andrew Evans, pensions partner at PwC, says that, in the UK, the influence of institutional investment in private equity could have an important impact.
He adds, ‘Allocations of funds to private equity in some pension schemes is increasing and scheme trustees are being encouraged by various parties, including government, to ensure that they act as responsible investors.’
The survey represents the opinion of 17 private equity houses, including six of the top ten largest global firms and 11 of the top 50.