PitchBook Survey Highlights Growing Importance of ESG

A recent report by PitchBook is telling on several levels when it comes to the changing state of environmental, social and governance (ESG) management in private equity (PE).

Pitchbook report cover

First, the survey highlights the growth in the number of PE firms, limited partners (LPs) and general partners (GPs) who are engaged on ESG issues. A whopping 84 percent of LPs told PitchBook that ESG is at least somewhat important when deciding whether to invest, and 24 percent said a strong ESG program could outweigh slightly lower historical performance. A majority of GP survey takers (60 percent) have an ESG program at their firm, up from 49 percent last year. Another 26 percent either are developing an ESG program or plan to do so in the near future. This year’s survey included 54 GP and 54 LP respondents, up from last year’s 48 GP and 4 LP respondents.

Then, there's the fact that a prominent industry publication like PitchBook is now regularly reporting on ESG. This is a pretty clear signal that ESG management is now a mainstream issue for private equity.

We're certainly proud that PitchBook singled out EDF's partner KKR for the second year as a clear industry leader, along with London-based Doughty Hanson. KKR's Green Portfolio Program has avoided more than 1.8 million metric tons of greenhouse gas emissions, 19.5 million cubic meters in water use and 4.7 million tons of waste, while racking up $917 million in combined cost savings and new revenue for portfolio companies since 2008. In that time, 25 KKR portfolio companies have participated and 19 companies are currently reporting results.

A growing number of PE firms are creating corporate social responsibility (CSR) reports, which the survey put at 28 percent this year, up from 18 percent in 2012. PitchBook highlighted the CSR reports published by KKR, the Carlyle Group (another EDF partner), and CalPers as examples of standalone industry reporting. We've been pleased to see ESG reporting extend to the middle-market level, namely Oak Hill Capital Partners, with whom EDF worked to create a methodology for identifying ESG opportunities across the portfolio.

ESG tool intro PDFThe survey found ESG of growing importance when it comes to portfolio company operations, called essential or very important by 31 percent of GP respondents, as compared with 18 percent last year. European firms were more likely to find ESG important.

At EDF, the increased attention to ESG has translated into more than 500 downloads of our ESG Management Tool for Private Equity in the year since its release. The tool defines the practices needed to build a successful ESG management program and provides a framework to assess and improve ESG management at firms of all sizes.

It's a very different landscape than in 2008, when EDF kicked off its work in this space. We look forward to seeing what the next five years bring.