Guidance for PRI private equity signatories on directors duties and ESG

September 10, 2019 – Debevoise special counsel Simon Witney, with the assistance of the wider Debevoise team, has authored a new legal memo for the Principles of Responsible Investment (“PRI”) on the duties of company directors who sit on private equity-backed portfolio company boards to consider the environmental, social and governance (“ESG”) risks and opportunities those companies face. 

The memorandum is specifically focused on the duties of UK company directors. The PRI has commissioned a follow-up note on the duties of US company directors. 

The memorandum concludes that the legal duties imposed on UK company directors require them, when exercising their powers, to understand and anticipate relevant risks to, and opportunities for, the company, including those related to ESG factors. Directors should therefore ensure that their company has processes to identify, manage and mitigate or exploit those risks and opportunities.

A copy of the memo can be found here. The PRI has produced accompanying guidance to explain its implications for its private equity signatories, and to recommend actions that can be promoted to underlying portfolio company boards.

Fiona Reynolds, CEO of the PRI: “A company’s board of directors is a crucial lever for transformation and adaptation. As our private equity signatories look to integrate ESG considerations into all aspects of the investment process, they utilise their engagement with company boards to drive effective oversight of ESG risks and strategic planning for ESG opportunities. This guidance proposes a way to systematise that governance mechanism to ensure that our private equity signatories and their underlying investee boards are aware of their legal duties to have regard to ESG factors.”