Private equity responsible investment reporting:
Best practice guide
Non-financial reporting is increasingly important to the private equity industry and the UN PRI is the foremost reporting framework for the industry.
With a strong business case for actively managing environmental, social and governance (ESG) issues, based on enhanced risk management and value creation, and increasing focus from investors on non-financial performance, effective reporting has never been more important.
Responsible investment reporting provides an excellent platform to demonstrate to investors both compliance and how fund managers are adding value through active management of environmental, social governance issues.
The private equity sector has historically focussed on environmental, social and governance (ESG) compliance, but there is a growing consensus in the industry that there is a strong business case for managing ESG actively to deliver strategic value.
There are four key reasons for more active ESG management in private equity:
- Enhance risk identification and management,
- Realise additional value creation opportunities,
- Demonstrate integrity, and
- Improve asset valuation process, including potential enhanced exit premiums.
Limited partners and institutional investors are increasingly interested in ESG issues. They recognise the value that can be added through active ESG management and are taking increasingly strategic positions on ESG issues such as carbon and climate change.
The number of investors who are UNPRI signatories is increasing steadily and there is concern amongst asset managers that the information requests for non-financial information are proliferating.
Whilst some PE firms have started to report on ESG issues, either through the UNPRI or through stand-alone reports, there remain significant opportunities to improve not only the quality of disclosure, but how well the reports communicate to investors the ways that ESG is adding to portfolio performance.