Most middle-market private equity firms say they consider environmental, social and governance (ESG) issues in their investing strategies, but they don’t report formally on ESG issues, according to a new study.
The study, “Lessons learned: insights from the COVID-19 crisis for middle market private equity sponsors,” is based on interviews with 100-plus U.S. middle-market PE firms. Sixty-three percent of the respondents consider ESG risks and opportunities in investing, but 60 percent don’t have formal processes for assessing and reporting those risks and opportunities, say the report’s authors: investment manager New York Life Investments Alternatives and consultant Coalition Greenwich. Also, 61 percent of the firms don’t even monitor and report ESG risks and opportunities.
The report puts a positive spin on the lackluster ESG efforts, saying the PE firms “have an opportunity to differentiate themselves” by committing to ESG goals.
One commonly cited obstacle to ESG reporting is the lack of standard ESG metrics, but that shouldn’t slow down ESG investing, says Elizabeth Burgess, a partner at Bridges Fund Management, a social impact middle-market PE firm.
“I don’t think that is a barrier to firms adopting ESG policies and reporting efforts,” says Burgess, who is not associated with the study. And anecdotally, she says, it seems that “more firms are adopting ESG in their investment decision making and more in their investment reporting.”
Mergers & Acquisitions will recognize PE firms that are leading the way on ESG issues in our inaugural 2021 PE Innovators in ESG. Click here to submit a nomination by Friday, Oct. 1.
And click here for Senior Reporter Brandon Zero‘s analysis of the Institutional Limited Partners Association’s newly released ESG assessment framework.