Supply chain ESG risks for private markets investors published by the PRI

Failing to consider ESG supply chain risks can hit reputations

The Principles for Responsible Investment (PRI) has launched a guide to help investors in private markets to address environmental, social and governance (ESG) risks in supply chains.

It has been put together with numerous market participants who formed a Supply Chain Working Group; it is hoped the guidance can be developed into a toolkit.

“Failing to consider ESG risks in the supply chain can result in reputational damage, examples of which we’ve seen time and again,” said PRI Managing Director Fiona Reynolds in a statement.

“The business case for effective management of ESG risk, including in the supply chain, is clear; the only way to guarantee peace of mind on sufficient management of risk to company value is to address the topic with investee companies.”

The PRI says supply chains are among the top ESG concerns named by private markets investors. But managing the risk can be a “daunting task”, given limited transparency and disclosure. The guide provides initial steps investors can take.

The PRI has 317 investment managers who are majority-invested in private equity, accounting for around $1.5trn in assets under management.Speaking at the launch of the document, the PRI’s Director of Policy and Research Nathan Fabian said there’s no single “off the shelf solution” to the complex problem. But the new document reflects practice in the public markets: “We know these processes work.”

The guide is primarily intended for direct investors and general partners (GPs) investing in private markets.

The PRI says it has tried to “futureproof” the guidance — though it acknowledges that it will need to be adapted, with the support of investors, as new demands and trends emerge.

It will invite a number of signatories to pilot the toolkit and give practical examples demonstrating how it fits into their overall investment process.

It said: “Beyond this, if there is sufficient demand from investors, the PRI will also consider the development of a second tool to help investors consider the materiality of specific ESG issues across different sectors within their supply chain.”