A new study released today by Malk Sustainability Partners (MSP) in collaboration with Environmental Defense Fund (EDF) shows that the private equity industry is looking much more seriously at environment, social and governance (ESG) issues as both risks and opportunities, and that many firms are adopting best-practices designed to unlock the potential value that exists in better stewardship of the companies they invest in.
Fifty-four percent of the private equity firms surveyed in the report, ESG in Private Equity: Perspectives and Best Practices for Managing Environmental, Social and Governance Issues say they currently leverage ESG management as a value creation driver, and ninety-two percent expect to increase their focus on ESG in coming years. Expectations of limited partners and cost saving opportunities were the two most cited drivers of private equity fund managers’ programs to integrate ESG considerations throughout the investment cycle.
The report also found that U.S. private equity firms were more likely than their European counterparts to approach ESG issues from the standpoint of financial returns, rather than risk management or public image concerns.
“This study confirms that ESG management amongst private equity funds now goes well beyond the commendable programs of early adopters. The majority of funds surveyed are working to generate higher returns from actively addressing these issues,” said MSP Managing Partner Andrew Malk, “In a private equity investing environment that demands more operational involvement to create value, ESG management practices are being deployed as effective new tools in the investor’s growing toolbox.”
The report is one of the first to survey both private equity firms (GPs) and their institutional investors (LPs), seeking perspectives from across this close-knit industry.
“A growing number of GPs and LPs have realized that proactively managing ESG risks and opportunities can be a powerful lever for value creation,” said Tom Murray, managing director with EDF’s Corporate Partnerships Program. “These investors are no longer asking why ESG issues are important, but how to capitalize on them. This study highlights this important trend and the ESG management practices that are emerging across the private equity industry.”
“ESG is a challenging issue set and the report from Malk Sustainability Partners offers perspective on how related management practices are bringing value to the sector,” said Don Anderson, Chief Sustainability Officer at Blackstone. “It’s a positive sign that many of the ESG approaches we are seeing and applying at our portfolio companies are reflected in the broader industry.”
About Malk Sustainability Partners
Malk Sustainability Partners (MSP) is a specialty management consultancy that guides investors and businesses in developing profitable corporate sustainability strategies. MSP specializes in helping private equity funds manage exposure to ESG risks, cut operating costs across their portfolio companies, and respond to the increasing ESG management expectations of their institutional investors.
For more information and to understand how ESG considerations can help boost returns at your fund, please contact:
Malk Sustainability Partners