Responsible investing is gaining momentum among private equity investors, although difficulties in measuring its value and aligning limited partner and general partner interest remain, a new PricewaterhouseCoopers survey reveals.
PwC surveyed 60 limited partners in 14 countries with about $500 billion collectively allocated to private equity fund managers.
Eighty-eight percent of limited partners surveyed believe there is added value in responsible investing, and 71% said they would turn down an investment on environmental, social and governance grounds. Additionally, 97% of respondents expect responsible investing to increase in importance over the next two years.
While there is clearly an interest or belief in ESG investing, what remains unclear is how to track its value, said Lauren Kelley Koopman, a director in PwC’s sustainable business solutions group, in a telephone interview.
Although 97% of respondents reported doing some sort of ESG assessment before allocating funds, only 32% do quantitative analysis, with the remainder doing qualitative.
Additionally, only 18% of respondents have withdrawn from an investment or withheld capital on ESG grounds, reflecting the difficulties and high costs of exiting a fund once capital is committed, PwC said in the report.
The survey also found that limited and general partners are struggling to communicate effectively on their ESG approaches and objectives. One area where they lack communication and alignment is ESG data collection.
That said, private equity investors who pursue ESG benefit from longer time horizon of the asset class, extensive due diligence procedures and role in portfolio company management, said Don Reed, a managing director in PwC’s sustainable business solutions group, in a telephone interview.
The survey was driven by an earlier general partner survey by PwC in which general partners named investor interest as a key driver in their ESG activities.