Case study: APG, PGGM and AlpInvest

In 2015, three Dutch investors, APG, PGGM and AlpInvest, initiated a project to develop a practical tool for GPs to facilitate regular ESG reporting to LPs during the lifetime of a fund, building on the requirements of the ESG Disclosure Framework for Private Equity published in 2013. This joint effort resulted in the creation of the ESG Reporting Template for Private Equity.

The collaboration was inspired by the existing good relationship these investors enjoy and by their alignment on responsible investment topics in general. They recognised the increasing need for more transparency in private equity, which would provide a better understanding of its ESG impact. They also saw their effort as an opportunity to provide guidance to the PE market on investor expectations.

To develop a workable Reporting Template, these investors sought feedback from various GPs and LPs active in responsible investment. The template was piloted with a number of PE funds. It was developed not only to meet the objectives of the three initiators and become an internal requirement, but also to be available for broader industry use. In this way, the Dutch investors seek to align their fellow PE investors and reduce the reporting burden on GPs and the underlying companies. The template was freely shared and is being used by several other investors in the market.

The template is structured in two sections:

• Section 1 – GP/fund overview contains six questions addressing fund ESG activities and developments in the GP’s ESG policies and management framework during the reporting period (usually one year).
• Section 2 – Portfolio overview consists of a table through which the GP can provide key information on material ESG risks and opportunities in each of its portfolio companies. At a minimum, investors would expect that the GP/fund would provide qualitative information on each portfolio company’s ESG risk profile and describe the challenges and opportunities it faces. The number and type of key items can vary between companies, geographies and sectors. Over time, it is expected that GPs will provide more detailed, quantitative and qualitative information on the material ESG risks and opportunities in each of their portfolio companies.

The Reporting Template comes with more detailed guidance for GPs, including sources of key performance indicators (KPIs), what type of information LPs might be interested in and examples of ESG issues that can be reported on.

The information reported by GPs through the template is used by the investors to track ESG progress within their PE portfolios, focus their engagement efforts with the GPs, follow up on the handling of any ESG incidents and encourage collection of ESG KPIs. LPs can also use the Reporting Template to collect information on specific ESG issues that they wish to get a portfolio-wide understanding on. In turn, the Dutch investors can use the reported information to relay insights to their own respective clients.

In the course of due diligence on a new fund investment by the three Dutch investors, the Reporting Template is shared with the GP and may also be made part of contractual reporting obligations agreed upon at the time of fund commitment.