Investors push alternative managers closer on ESG
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
      Kennedy Lewis raises $2.1 billion for latest opportunistic credit fund
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      CalSTRS participant retirements jump in second half of 2020
      Steve Foresti
      Despite a truly frightening March, funds ended year in great shape
      Mexico manages breakthrough in virus-marred year
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Kenneth J. Munro III
      Empower names new national sales director
    • Global business leaders commit to stakeholder metrics
      Emissions rise from a coal-fired power plant
      NYC pension funds to divest fossil fuels
      A Eurosystem monetary authority sign outside the European Central Bank headquarters in Frankfurt on March 7, 2019
      ECB considers going greener in staff pension fund
      Investors offer advice to ministers for U.K.’s low-carbon ambitions
    • Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
      Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
      Gifford Fong
      Old ties help bring local version of JOIM to mainland China
      Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Global business leaders commit to stakeholder metrics
      Newly appointed Treasury Secretary Janet Yellen
      Senate confirms Yellen as Treasury secretary
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Indiana roofers union pension fund applies for MPRA benefit cuts
    • CI Financial to acquire Segall Bryant
      watch video
      1:33
      A look at hiring activity in 2020
      Caroline Feeney
      Prudential Financial adds CEO of insurance and retirement
      HSBC GAM selects heads of health-care equity investment team
    • Canadian plans cap 2020 with 10% annual return – Northern Trust
      CalSTRS participant retirements jump in second half of 2020
      Marcie Frost
      California pension funds learning from experience
      A sign outside California Public Employees' Retirement System headquarters in Sacramento
      CalPERS expecting to announce new CIO this quarter
    • Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Caroline Feeney
      Prudential Financial adds CEO of insurance and retirement
      HSBC GAM selects heads of health-care equity investment team
      Rene Buehlmann
      Standard Life Aberdeen makes senior leadership changes in APAC, U.K. and EMEA
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • EQT inks deal to buy real estate manager
      Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
      Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
      Los Angeles school district seeks third-party administrators 403(b) plan
      Los Angeles County Employees casting for private equity consultant
    • SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
      Los Angeles school district seeks third-party administrators 403(b) plan
      Los Angeles County Employees casting for private equity consultant
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      Cartoons depict a year like no other
      view gallery
      25 photos
      2020 in editorial Cartoons
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Riskwatch for Q4 2020
      Graphic: A look at hiring activity in 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ESG
January 11, 2021 12:00 AM

Investors push alternative managers closer on ESG

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Megan Starr
    Photo: FCI Creative
    Megan Starr said Carlyle believes climate-related financial disclosure will be in great demand.

    Alternative investment managers are stepping up their environmental, social, and corporate governance efforts including diversity and inclusion, pushed along by investors' increasing demands for accountability.

    Investors have been pushing for greater ESG efforts for years but now expect alternative investment firms to take larger strides in this direction.

    The Black Lives Matter protests in 2020 brought the issue of diversity to the forefront for some asset owners and managers, while more investors in Europe and in the U.S. are incorporating it into their investment thinking.

    According to a recent survey by secondary market alternative investment firm Coller Capital Ltd., 63% of institutional investor respondents expect the private equity industry to accelerate its focus on ethnic diversity within their firms and their portfolio companies, bringing about faster change. The other 37% indicated that increased diversity and inclusion efforts in the private equity industry have been slow to materialize "despite good intentions."

    Managers are also moving forward on tackling climate change, spurred on by the pandemic.

    In response to investor demand, Carlyle Group Inc. is one of the first alternative investment managers to provide climate change disclosures under the Financial Stability Board's Task Force on Climate-related Financial Disclosures, said Megan Starr, New York-based principal at Carlyle and the global head of impact.

    "Our financial incentives are increasingly aligned with being at the forefront of the energy transition and how to do it faster because we see it impacting exit multiples in a positive way," Ms. Starr said. "If you take an oil and gas company from zero to 40% renewables during the hold period, you could potentially double the company's trailing EBITDA multiple."

    Ms. Starr said that she sees 2021 as the year of adoption for a greater number of alterna- tive investment firms. Carlyle executives think that TCFD will become the leading framework globally, she said.

    Managers are recognizing that they need to do more to more with regard to climate change.

    "I think organizations are increasingly comfortable that they haven't achieved climate nirvana," she said. "You can own where you are today and set the goals of where you want to go."

    ESG offerings have transitioned to mainstream from niche, said Pratap Singh, director, private equity and venture capital at research provider Acuity Knowledge Partners. Forty-two percent of the capital raised for alternative investment funds in 2019 was for ESG-focused funds, up from 33% in 2011, Preqin data shows.

    This trend has been driven by large alternatives managers such as The Blackstone Group Inc., Apollo Global Management Inc. and Carlyle Group, with each manager including ESG mandates for all their funds regardless of their respective strategies, Mr. Singh said. "The pandemic has accelerated the acceptance of ESG offerings by alternative investment managers as they seek to gain a competitive advantage once markets normalize," he said.

    Bloomberg
    An environmental campaigner holds a placard reading 'System Change, Not Climate Change' in Parliament Square during a protest by Extinction Rebellion in London.
    Investors already focused

    Investors are already focused on climate-change issues. For example, the $254.7 billion California State Teachers' Retirement System, West Sacramento, established a low-carbon transition work plan in 2019. This year, CalSTRS officials are working on incorporating the low-carbon transition into their investment process.

    Low-carbon is one focus of the CalSTRS Sustainable Investment and Stewardship Strategies unit, which also includes sustainable investment and stewardship. In 2021, CalSTRS officials plan to look for new ways to reduce portfolio carbon emissions and climate risk in its public asset investments. CalSTRS is also developing a new sustainable investment private asset portfolio and is expected to take up a sustainable investment policy for its alternative investment portfolios in March.

    Carlyle is focused on the energy transition across its portfolio, Ms. Starr said.

    "Carbon footprinting is not the answer," she said. "It's a piece of the puzzle but it doesn't tell the whole story."

    Carlyle found in its analysis that the materiality of carbon emissions differs greatly across sectors. For example, one of the areas with the highest potential impact from climate risks and opportunities is Carlyle's international energy strategy. In the past year, Carlyle has created a renewable energy and sustainable resources business to access the opportunities the firm sees in the energy transition, she said.

    Carlyle is not alone in seeing the increasingly important impact of ESG on alternative investments. Some private credit managers expect a growing focus on ESG will impact the type of companies that will apply for loans.

    The industry trend focusing on ESG "might change the profile of the type of companies that come to the private markets," said Candy Shaw, Toronto-based deputy CIO at Sun Life Capital Management (U.S.). "(Investment) opportunities are expanding in certain sectors and industries and contracting in others," Ms. Shaw said.

    "Old-school industries" are being pushed to the side, while new, more forward-looking industries like technology, renewable energy or the carbonless society space are getting a lot of traction, she said. "Coal is going the way of the dodo, especially in advanced economies."

    ‘More proactive'

    Eric Deyle, a Rowayton, Conn.-based managing director at placement agent Eaton Partners LLC, has noticed an escalating focus on ESG by institutional investors including in their due diligence requests.

    Five or 10 years ago, certain limited partners had some "no fly zones," meaning sectors in which they would not invest, he said.

    "Now they are more proactive," Mr. Deyle said.

    Investors are asking their managers or potential managers about their ESG policies and how these policies are being implemented, he said.

    Even so, Mr. Deyle has not seen an overall standard yet emerge.

    "But I see LPs pushing for ESG and diversity," he said. "In my mind, these are big positives. LPs are increasingly becoming advocates for change and are more demanding of sponsors (managers)."

    Manoj Mahenthiran, Chicago-based partner and private equity leader at PricewaterhouseCoopers US, said that ESG considerations are becoming more important to private equity managers but they are "not yet pervasive across the industry."

    Investors are asking a lot of questions the managers' efforts to reduce their carbon footprint and the carbon footprint of their portfolio companies, Mr. Mahenthiran said.

    He added that there is definitely more of an effort to create a little more consistency in how managers report ESG at the portfolio level. Everyone is trying to put their heads together to decide what they should be tracking, he said.

    "Now it's more free-form," Mr. Mahenthiran said. "In the future, it (reporting) will be more organized and more deliberate. Very quickly, it will be something every private equity fund has to think about and report out."

    Lori D. Campana, Boston-based partner at placement agent Monument Group Inc., said an increasing number of institutional investors in the U.S. are following the lead of European LPs to focus on making their portfolios carbon-neutral.

    Among them is the $226.4 billion New York State Common Retirement Fund, Albany, which announced in December that it would be reducing its investments in energy companies in an effort to attain a net-zero carbon emissions target by 2040.

    Also in December, the $5 billion The Rockefeller Foundation, New York, said it would be divesting from fossil fuels. The $6.9 billion endowment of Cornell Unversity, Ithaca, N.Y., in May instituted a moratorium on new fossil-fuel investments in new private equity and bond vehicles.

    Bloomberg

    Pipework and refining towers at an oil refinery in Poland

    Broader considerations

    A focus on ESG considerations is also expanding beyond the largest alternative investment managers. Value-added multifamily real estate manager Interstate Equities Corp. in November appointed San Francisco-based Bakari A. Adams, director of asset management, to the new position of director of ESG. Interstate Equities Corp. has about $1 billion in assets under management.

    For the first time the firm is incorporating ESG into its annual budget, he said. The plan is to create an ESG report and share it with its investors.

    IEC doesn't have an impact investing approach, but sees incorporating elements of ESG as good for the environment and society as well as the firm's returns. The firm invests in Class B apartment buildings in California. The firm buys properties and fixes them up, including making them more energy efficient, Mr. Adams said. "Historically, we've always used LED lights and we've always tried to reduce energy, water consumption. Now we are shining a light on it," he said

    IEC executives also plan to investigate what more they can do to minimize the carbon footprint of their portfolio, he said.

    Monument Group's Ms. Campana said she expects more focus on aspects of ESG in 2021 including a greater awareness of the need to increase diversity and inclusion across the industry.

    The Pension Real Estate Association's foundation in March announced a $4 million grant to Sponsors for Educational Opportunity, a non-profit aiming to offer educational and career opportunities to underserved communities, to support the development and growth of a real estate program to promote diversity across the real estate industry.

    Emphasis on diversity

    A lot of investors have put a growing emphasis on women-owned or minority businesses and are targeting funds to invest in them, Ms. Campana said.

    "It's (the industry) has always been made up of all white men," Ms. Campana said.

    There's a new generation of more diverse executives evolving but it takes time for the next generation of vice presidents and principals to move up the executive ladder.

    "The founders are all white men but they have to demonstrate their commitment to the next generation with positions that are meaningful," she said. "Over time we will get there because the money is going to demand it."

    PwC's Mr. Mahenthiran said that investors are not only asking managers about the diversity of their staffs but also about diversity at portfolio companies.

    In December, more than 40 limited partners and general partners signed onto the Institutional Limited Partners Association's Diversity in Action initiative, committing to take concrete steps to advance diversity, equity and inclusion at their firms and across the industry. The initial set of signatories include the $155.2 billion Texas Teacher Retirement System, Austin, $37 billion Connecticut Retirement Plans & Trust Funds, Hartford, KKR & Co., Carlyle Group, Blackstone Group Inc., Ares Management Corp., Landmark Partners, TPG and Welsh, Carson, Anderson & Stowe.

    Real estate investors are also increasingly viewing diversity and inclusion as an important topic, especially when they are hiring managers, said Nancy Lashine, New York-based founder and managing partner of Park Madison Partners LLC, a boutique real asset private equity placement firm.

    Investors are asking a lot more questions on ESG topics, she said. They want to know whether managers have plans to address the lack of diversity across the industry, Ms. Lashine said.

    Related Articles
    Advocates promising big push in Washington on all things ESG
    Investors see ESG conundrum – survey
    Report: International public entities lead way on ESG actions
    Recommended for You
    Global business leaders commit to stakeholder metrics
    Global business leaders commit to stakeholder metrics
    NYC pension funds to divest fossil fuels
    NYC pension funds to divest fossil fuels
    ECB considers going greener in staff pension fund
    ECB considers going greener in staff pension fund
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center