ESG factors have steadily increased in importance for investors and businesses alike and today, there is a growing global understanding that integrating ESG into the business model can drive both innovation and profitability, adding value to all stakeholders. In a 2011 progress report from the United Nations-supported Principles for Responsible Investment (UN PRI), it was estimated that the total value of internally active managed assets under management for which ESG criteria were integrated via PRI signatories into the underlying investment strategies exceeded USD 10.7 trillion. Though it represented less than 10% of the total global market at the time, it clearly demonstrated a change which is rapidly gaining momentum.
RI and ESG issues have been high on EQT’s agenda for several years and, apart from developing its own RI policy and practices, EQT has also been a keen participant in the private equity industry’s efforts to promote and implement sound RI and ESG practices.
On a global scale, the United Nations-supported Principles for Responsible Investment (UN PRI) is an important platform which EQT became a signatory of in 2010. The principles generally state that ESG issues will be incorporated into the signatories’ investment decision making and ownership practices as well as reported to the UN PRI. The reports will be made public from 2014.
- This is an important step forward for the UN PRI initiative and one that EQT fully supports. It takes transparency and accountability to a new level, says Therése Lennehag, Responsible Investment Director at EQT Partners.
She is also the Chairwoman of the recently formed Responsible Investment Roundtable at EVCA, the European Private Equity and Venture Capital Association. It is a permanent forum dedicated to RI practices and ESG issues in Europe’s private equity industry.
- The Roundtable is an important part of EVCA’s on-going commitment to RI. It will provide a forum where ideas, issues and practices to do with RI and ESG factors can be freely discussed. EQT and I are looking forward to playing our part in ensuring that the EVCA and the private equity industry keep moving forward on these issues, says Therése Lennehag.
A separate, recent and global initiative comes from the global community of investors who invest in private equity funds. Following a 16 month consultation process involving more than 40 limited partners (LPs), 20 industry associations and 10 prominent general partners (GPs), the document Environmental, Social and Corporate Governance Disclosure Framework for Private Equity was published on 25 March 2013.
The ESG Disclosure Framework was developed to help GPs better understand why LPs want ESG-related information and to help rationalise the types of questions LPs are increasingly asking GPs on ESG. The document outlines eight objectives common to many LPs who want more structured ESG disclosures within private equity investments.
The first five objectives relate to the fund due diligence process, and the next three relate to disclosures during the life of the fund. Guidance is also provided on the disclosure of information around unexpected events that might pose reputation risks of some kind.
- This is an important initiative and the very active involvement of LPs, many of whom also have invested in EQT funds, is very valuable. I believe it will be very helpful to the GP – LP dialogue on these issues, says Therése Lennehag.