Environmental, Social, And Governance (esg) Issues In Private Equity

By Author: eormseo eorm
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The Private Equity Industry encompasses a significant percentage of the world economy. Within it, we have seen the emergence and focus toward Environmental, Social, and Governance (ESG) issues; which is good news for both the Sustainability Field and Private Equity industry. The Malk Sustainability Report on ESG in Private Equity (2012) has found that many companies are seeing financial benefits from their focus on such issues as waste reduction, energy efficiency, and new product lines influenced by environmental focus. ESG focuses on environmental sustainability, social equity, and corporate citizenship. Another major influence pointing companies toward a stronger focus on ESGs is pressure from investors. This is more than just a simple trend. Given the significant cost savings, LP (limited partners) expectations, competition, and regulations, companies are driven, and even compelled to focus their attention deeply on ESG topics.

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A recent study conducted by Malk Sustainability Partners in collaboration with the Environmental ...
... Defense Fund (2012) provides perspectives and best practices for managing ESG issues. They recommend the following:

Leadership
Adoption of a specific policy for managing ESG issues throughout the investment cycle
People
Recruitment of experts or consultants to plan and execute ESG related initiatives
Operations
Collaboration with portfolio companies to enhance ESG performance at the operational level
Diligence
Enhanced integration of ESG considerations into the due diligence process
Metrics
Metrics and reporting to manage ESG efforts and measure improvements
Communications
Development of communications tools highlighting ESG accomplishments

Two key resources have been instrumental in providing ESG guidance to the international community are:
-UN PRI (United Nations- Principles for Responsible Investment)

For this trend to be sustainable the Private Equity Industry needs to develop international standards and key performance metrics in order to quantify the value of ESG issues in relation to value creation. Ultimately, communication between peers and investors is paramount toward the success of using these issues to elevate the industry as a whole according, to the Malk Sustainability Report (2012). There is now a shift in thought, the question amongst Private Equity leaders is not “What is ESG?” but rather “How can we incorporate ESG into our investment cycle?