Private credit and growth equity/venture funds have fallen behind private equity investors in some aspects of their environmental, social and governance practices, according to Malk Partners' first survey of general partners' attitudes and adoption of ESG released Thursday.
The survey, which focused on 51 private equity, credit, growth equity/venture capital, and hedge funds with nearly $750 billion in total assets under management, found that 98% of GPs said demand from limited partners was one of the primary factors behind their adoption of integrating ESG.
Other such important drivers included risk management (67% of respondents), alignment with peers (53%), value creation (51%), and regulatory pressures (40%).
However, the adoption and integration of ESG in private markets varied widely.
For example, while 100% of private equity investors surveyed have already integrated ESG into their investment process, only 86% of growth/venture funds have, and for credit funds, that figure drops to 64%.
In addition, while 84% of private equity funds monitor their portfolio companies on ESG matters, the corresponding figures for growth/venture funds and credit funds were 60% and 11%, respectively.
Also, while 20% of upper-middle-market private equity firms in the surveyed link ESG performance with executive pay at portfolio companies, none of the lower-middle-market respondents have adopted this practice.
The survey also discovered that asset class and firm size determine how investors evaluate issues such as climate change, and diversity, equity and inclusion.
For example, while climate issues were cited as a priority among 62% of GPs surveyed, only one-third of upper-middle-market private equity investors have adopted net-zero commitments and just 20% of lower-middle-market firms have done so.
About one-quarter of private equity investors in the survey said they tracked greenhouse gas emissions at the portfolio company level; but only 10% of private credit investors do so.
Malk Partners is a consultant for private market investors on ESG management and impact investing. Malk advises more than 100 GPs and their portfolio companies, representing more than $1 trillion in AUM.
