Report on progress: private equity (2014/15)

Limited partners (LPs) can use this report to understand best practices and to factor this into their dialogue with general partners (GPs).

We found

Since 2009, the GP signatory base has shown rapid growth whereas LP growth has been modest, though steady. There is a gap between LP responsible investment due diligence and the translation of these findings into fund documentation and manager evaluation practices.

While many investors are considering responsible investment factors to some extent in all three stages of selecting, appointing and monitoring managers…

• 35% of respondents assign specific weighting to these factors during selection.
• 44% stipulate in fund formation contracts that GPs report on agreed ESG implementation activities.
• 48% include responsible investment criteria as a formal component of overall manager performance evaluation.

GPs are doing well in their policy, fundraising and pre-investment practices but do not, as a whole, have systematic processes in place for assessing and monitoring the impact of ESG issues on company value.

• 32% of respondents stated that ESG issues had impacted terms in the investment agreement/SPA. 25% stated that ESG issues had impacted investments in terms of prices offered and/or paid.
• 17% define ESG performance targets for over half of their portfolio companies.
• 40% disclose ESG issues in pre-exit information in all or a majority of cases.
• 26% are measuring changes to ESG performance.
• 14% are measuring how ESG issues impact financial performance.

We encourage

All signatories

• Use this report and your PRI Assessment Report to compare yourself to peers and identify areas for improvement.
• Take advantage of the PRI fs guidance and support on how to implement responsible investment within PE.
• Use the PRI as a platform to engage in the LP-GP dialogue on how to align expectations on responsible investment and achieve a common industry language.

Limited partners

• Use this report to identify common and leading responsible investment practices when in dialogue with GPs during the phases of due diligence, commitment and monitoring.
• Talk to managers about their PRI Transparency and Assessment reports.
• Encourage your peers to join the PRI and to apply responsible investment processes to their private equity investments.

General partners

• Measure the ESG impacts of your portfolio.
• Contribute to industry research and debate . through the PRI or independently . to advance the industry fs understanding of responsible investment strategies and techniques.