We were excited to hear AlpInvest Partners Chief Executive Volkert Doeksen's recent remarks where he urged institutional investors (LPs) in private equity to keep pushing for greater integration of environmental, social and governance (ESG) initiatives into the management of private equity firms (GPs) by focusing their efforts on implementation and results.
Incorporating ESG into a firm's overall investment strategy will lead to stronger portfolio companies and a better public image for the industry, Doeksen told delegates at Private Equity International's Responsible Investment Forum in Amsterdam, according to PEI's Amanda Janis, who described the crowd as standing room only. Now that progress has been made to raise awareness about the bottom-line value of ESG investment policies at private equity firms, leading LPs should push to take ESG to the next level, Doeksen said.
In addition to added LP focus on the topic, the tight fundraising environment has made quantifiable progress in ESG management a clear differentiator for private equity firms. The conversation has gone from “why should we do this?” to “how do we get this done?” This has created a growing need for tools and resources that both GPs and LPs can use to analyze and assess specific ESG practices at private equity firms.
EDF has been working to fill that need. We’re developing an ESG Management Tool for private equity that defines for the first time the practices necessary to build a successful ESG program at firms of all sizes.
Building on our work with KKR, The Carlyle Group and Oak Hill Capital Partners, a growing body of research on ESG best practices in private equity and an extensive peer review process, we’re developing a Tool that provides the necessary framework to assess, analyze and improve ESG management. Twenty-one key indicators are included in the tool, best practices that highlight not only how to integrate ESG processes into a firm’s operations but also how to create measurable environmental, social and financial results at portfolio companies.
We will publicly release the tool in coordination with the Responsible Investor ESG in the USA conference at Bloomberg on December 11th and are looking forward to working with both institutional investors and private equity firms to leverage the Tool to make measuring and managing environmental, social and governance performance a standard practice for value creation across the private equity sector.