Some private equity executives I spoke to the past year, both in my role at PGGM and ERM, mentioned that ESG (environmental, social and governance) integration is becoming less prevalent in the discussions they have with their investors. However, in discussions with their investors we, at ERM, noticed three ESG trends that will impact private equity firms in 2016 and beyond: Institutional investors are setting ESG ambitions, improving ESG monitoring and data availability, and shifting towards ESG value creation.

  1. Setting ESG ambitions: What we mean by ambitions is that institutional investors, such as pension funds, are increasingly setting sustainability targets for their investment portfolios. For instance, Dutch pension funds ABP and PFZW have both set CO2 reduction targets, and AP3 seeks to triple its green bond holdings. Although most of these targets have focused on the investors’ public equity and bonds portfolios, it is a matter of time before these will be applied to their alternative investment portfolio (ie those including private equity (PE) funds). Institutional investors will also look for other ambitions in line with their investment strategy and those of their stakeholders’. In the near future, we may see water scarcity targets and health and safety targets for instance. As these risks become more evident as an investment risk and opportunity, institutional investors will also want to measure them, which brings us to the second trend. …


When you put 100 portfolio managers in a room, very few want to be the odd one out saving the planet.

Responsible investment specialists must become better storytellers for mainstream investors and CFOs.

The use of words such as “externalities”, “extra-financial risks” and “socially responsible investments” often results in the perception that environmental, social and corporate governance (ESG) factors are extraneous to conventional investment decision-making, that they are extra work, and that they are only about ethics. …

About

Tim Van Der Weide

On a mission to reconnect people and nature, one place at a time.

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