Many asset owners in private markets say they are looking at investments through an ESG lens, not simply as an afterthought.
A biannual private equity investor survey of limited partners released June 8 by Coller Capital Ltd., an alternative investment secondary markets manager based in London, found that 65% of survey respondents see ESG as adding value, both through proactive change to portfolio companies and exclusion of high-risk investments and business practices.
By environmental, social and governance topic, 93% of the private equity investors surveyed said they focus on climate change as a risk, followed by water quality/access at 42%, air quality at 33%, microplastics and biodiversity at 28%, and deforestation at 25%.
"Our ESG policy has evolved since 2011 and as it evolved, the managers have evolved," said Stephen O'Neill, head of private markets at the National Employment Savings Trust, London. The £24 billion ($30 billion) defined contribution multiemployer plan has roughly 10% allocated to private markets, and plans to double that in five years, Mr. O'Neill said.
Another survey conducted in February by the Institutional Limited Partners Association in Washington and Bain & Co. in Europe of more than 100 limited partner organizations found that over the next three years, 68% expect to increase both their ESG investment allocations and in-house ESG capabilities, and 80% will be ramping up ESG reporting requests to fund managers.
Climate risk tops many investors' ESG priority list. A Pensions and Lifetime Savings Association survey of 91 U.K. pension funds in May found that 74% have net-zero plans in place or planned within the next two years. After climate, diversity and inclusion and human rights were the next priorities for pension funds over the next 18 months.
For NEST, a big priority "will be to crystallize our path toward net-zero," Mr. O'Neill said.
As more investors adopt strategies and investments that address climate change and other environmental challenges, "the focus is starting to shift to the 'S,'" Mr. O'Neill said. In terms of investments, that social category of ESG could mean an investment such as affordable housing in an infrastructure debt portfolio, or private asset classes with more tangential effects, such as the impact of an onshore wind project on the surrounding communities.