London, UK: Ahead of the COP26 Climate Change Conference, the BVCA Limited Partner Summit examined how institutional investors are obtaining and measuring environmental, social and governance data from their private equity holdings and asset managers. Bill Prew, CEO INDOS Financial, a JTC Group company, sat down to moderate the session with leading names in the LP space.
The BVCA Summit is the world’s largest one-day conference for private equity and venture capital professionals. This Summit, which attracts over 800 top executives from business, finance, and politics, takes place each year at the Landmark Hotel in London.
Although disclosure of environmental, social and governance (ESG) data by private equity (PE) managers to limited partners (LPs) has improved over recent years, investors noted that procuring information can still be a challenge.
The reticence of some general partners (GPs) to share ESG data is compounded by the fact that it can be difficult to gather post investment information such as carbon emissions from private businesses, at least in comparison to publicly listed companies.
Moreover, understanding how companies manage carbon emissions and other ESG risks can also be quite challenging. Assuming PE managers are happy to share their ESG metrics, there is no standardisation in how this information is collected and reported, creating further problems for LPs, especially those invested across multiple funds and asset classes.The BVCA’s main annual event is the LP Summit, which is limited to institutional investors. Each year, a broad range of Limited Partners from the United Kingdom and around the world gather to learn about and discuss investors’ return expectations, performance, benchmarking, and reporting.
In summary of this article, we can say that regulation and industry-led initiatives such as the ILPA ESG Assessment Framework are likely to play a role in facilitating transparency. With TCFD reporting now becoming a regulatory and compliance obligation, there will be greater accountability on asset managers around ESG.
Speakers cautioned, however, that GPs need to do more than treat ESG reporting as a compliance exercise and concentrate on integrating ESG into risk and investment management processes to ensure there is tangible progress being made towards achieving net zero.
While some investors have established their own in-house ESG teams, there are many institutions which need to consider ESG matters and will be reliant on external service providers, particularly in areas such as carbon assessments and collection together with analysis of data.
With sustainability now becoming a critical component of the manager selection process, the private equity industry will need to continue to improve its ESG (SEC) reporting and disclosure to LPs.
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