Mergers & Acquisitions names the 2021 PE Innovators in ESG, including, The Institutional Limited Partners Association.

The Institutional Limited Partners Association, members of which manage over $2 trillion in capital, is helping to create an industry standard for private equity investors looking for environmental progress in portfolio managers. Against what metrics can limited partners evaluate general partners’ commitment to environmental, social and governance goals? ILPA’s August release of its ESG Assessment Framework provides a starting point, with important caveats. “Many best practices are still being developed,” the document reads, and the framework is “not exhaustive.”

Still, the guidance goes beyond the boilerplate language of so many sustainability policies. Guide-compliant investments have GP-led ESG diligence focused on identifying risks which are then used as factors in the investment decision. This doesn’t only highlight downsides, however. Advanced practitioners also identify ESG-related value creation opportunities in a potential portfolio company, with legal and HR buy-in.

Once acquired, portfolio company progress should be measured by KPIs, assessed
at least annually, and monitored by board members “trained and accountable for material ESG considerations.” Progress toward such goals is then marketed alongside sale materials on exit. That could help push the industry to factoring environmental concerns into investment decisions.