Leading global investors back new private equity ESG disclosure framework

A group of 41 major institutional investors which invest in private equity have put their weight behind a new eight-point environmental, social and governance (ESG) disclosure framework for the asset class.

The investors who have expressed their formal support for the initiative range from the AFL–CIO Office of Investment right through to the Victorian Funds Management Corporation (full list below).

The document follows a 16-month consultation and drafting process, which also involved 10 private equity firms, chaired by Tom Rotherham, Director of Private Markets at Hermes Equity Ownership Services.

The idea is to help the firms (‘general partners’), understand the ESG requirements of their investor clients (‘limited partners’).

The guidance, intended as a practical toolkit and not a hard-and-fast set of rules, is split into two areas: due diligence and disclosure. The format is a set of relevant questions to help guide the dialogue between both clients and their private equity managers.

“This will help give limited partners better insights into the management of underlying portfolio companies – something a growing number believe is needed to fulfill their fiduciary duty,” Rotherham said.

The five-page document was put together “in close contact” with the International Private Equity Valuations (IPEV), the Institutional Limited Partners Associations (ILPA) and the PRI Initiative to ensure it is complementary to their work.Section 1: Disclosures during fund raising:

1. Assess general partner alignment with LP’s ESG-related policy/investment beliefs.
2. Assess GP’s policies, processes, and systems for identifying ESG value and managing material ESG risks.
3. Understand the GP’s impact on portfolio companies’ management of ESG.
4. How will the GP help the LP monitor?
5. Assess the GP’s approach to managing and disclosing material incidents

Section 2: Disclosures during the life of a fund:

6. Establish if GP is acting consistently on ESG management
7. Understand how ESG developments may impact portfolio companies.
8. Determine if responses to incidents are consistent with investments terms and policies.

Investors endorsing the new framework:

AFL–CIO Office of Investment, AlpInvest, AP1, AP2, AP3, AP4, APG Asset Management, Aviva Investors, Axa Private Equity, Blue Sky Group, Caisse de dépôt et placement du Québec, Caisse des Dépôts, CalPERS, Capital Dynamics, CBUS, CDC Group, Hermes GPE, HESTA, IFC, Local Government Super, Lothian Pension Fund, Merseyside Pension Fund, MN, Ontario Teachers’ Pension Plan, OPTrust Private Markets Group, Pension Protection Fund, PREVI, Public Sector Pension Investment Board, Pantheon, PGGM, PKA, Robeco Private Equity, RPMI Railpen Investments, SEIU Master Trust, South African Government Employee Pension Fund, SPF Beheer, Storebrand, Syntrus Achmea, Unipension, USS and VFMC.