Malk Report highlights increasing influence of Institutional Investor on ESG in Private Equity

When Environmental Defense Fund (EDF) started its partnership with KKR five years ago, it would have been hard to anticipate the dramatic findings from Malk Sustainability Partners' report “ESG in Private Equity – 2013,” released Monday.

The private equity sector has rapidly shifted to understand the business imperative of Environmental, Social and Governance (ESG) management, with many different firms now making a public commitment to delivering measurable results.

What’s driving this trend?  The report suggests a few factors that we’ve also been seeing in the industry recently:

1)      A dramatic increase in the level of interest and leadership of a small but influential group of limited partners (LPs).  Fifty eight percent of the LPs surveyed said that they had increased their commitment.

2)      Since LP expectations are now cited as the largest driver for general partner (GP) action, increased LP focus likely is the primary force leading 74 percent of GPs surveyed to boost their commitment to ESG in the past 12 months.

3)      As is evidenced by the 14 different professionals quoted in the study, responsibility for ESG management is spreading to include several different job functions and operational areas, beyond the traditional domains of investor relations and general counsel.

Perhaps even more exciting is the indication from several of the participants that this interest from LPs is only growing stronger. While cost savings, revenue growth and reputation all are excellent drivers for increased ESG activity, hearing from a growing number of your clients about the importance of ESG management builds a sense of urgency that can drive even stronger results.

Overall, the report highlights a growing ecosystem within the sector that is driving firms to act now to deliver stronger environmental, social and financial results.