North American Private Equities Lag Behind in ESG Engagement

    Stockholm (NordSIP) – According to a survey by Aberdeen Standard Investments (ASI), ESG engagement in private equity firms is increasing. However, the study, which was sent to 176 General Partnerships (GPs), shows that while engagement with ESG issues is growing in Europe and Asia Pacific (APAC), it is lagging in North America.

    AIS attributes each respondent an ESG rating based on their responses. In 2019, a consistent number of European respondents achieved a Green rating, and none of the 60 PE firms from Europe was assigned a red rating, the lowest attributable level.

    “The general trend suggests that Private Equity firms are regarding ESG as increasingly important, with firms based in Europe leading the way,” Merrick McKay (Pictured), Head of European Private Equity at Aberdeen Standard Investments, commented. “There’s still scope for improvement in terms of their ability to measure and monitor against key ESG-related metrics, and this is something that we will be encouraging during our discussions with GPs. We are optimistic, looking at results from firms based in Asia Pacific, with a number of respondents having implemented initiatives in the last year to improve ESG performance. ESG engagement in North America is lagging behind Europe and Asia Pacific and we will follow up with those GPs who either didn’t respond or who scored poorly relative to their peers. ESG remains a core component of our investment philosophy and is incorporated into our diligence and monitoring processes.”

    More than half of the respondents implemented at least one positive ESG change in the year, with many introducing several initiatives, according to the survey. Responses also showed an increased focus on the UN Sustainable Development Goals, though many GPs are looking for industry guidance.

    In Europe, more than half of the respondents reported taking action concerning ESG, including carbon offsetting, reduced air travel, and reducing reliance on single-use plastics. Over 80% of European respondents also indicated that they promote diversity initiatives and encourage diversity at a portfolio company level, though many are yet to establish monitoring procedures.

    However, not all news results were encouraging. Only 38% of firms surveyed were signatories of the UNPRI, UN Compact or similar international conventions supportive of sustainable investment practices. Moreover, less than a third of GPs surveyed are formal signatories to the UN Principles for Responsible Investments, the UN Global Compact or similar voluntary international industry arrangements. According to the survey, 39% of PE firms have no current plans to sign on to any such agreement.

    Image courtesy of AIM

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

    Latest Posts

    NordSIP Insights Handbook

    What else is new?