Aligning investment and ESG criteria is no longer just a matter of front-end preparations: a fresh EY survey of institutional investors shows that divestitures could increasingly be driven by portfolio company failures to hit environmental and governance goals.
The pandemic has accelerated expectations that holdings will comport with investor beliefs. Investors reported an overwhelming (86 percent) preference to hold companies with strong ESG performance and to divest (74%) companies that underperform on those metrics, as compared to prior to the Covid outbreak. This also checks out with recent results from a BDO poll of PE investors, which found divestiture expectations rising (at least from corporates).
It’s a preference that’s as economic as it is moral: “investors surveyed put most of their focus on consumer sentiment when it comes to assessing a company against social criteria,” the report reads. The potential for activism directed against portfolio companies through boycotts and social media campaigns appear to shape investor preferences.
Private equity is moving in response. Just today, Apollo Global Management announced the appointment of Carletta Ooton as head of ESG for private equity. A raft of hires has inundated the industry as firms look to implement investor preferences for ESG goal compliance.
Check back next month, when Mergers & Acquisitions will recognize firms that are leading the way in our inaugural 2021 PE Innovators in ESG. And join us at our upcoming virtual event: PE Innovators in ESG Speak on Dec. 1!
