When private equity players come together to discuss how to be more responsible, that is noteworthy. Just five years ago such a conference would have been considered impossible. So what has triggered this shift? What I heard at last month’s PEI Responsible Investment Forum in Amsterdam were three factors. 

First, client interest. Second, the ‘communication challenge’ that private equity faces. And third, participants thought ESG integration could enhance risk-adjusted returns. Of course, few things in life are so black and white.

On demand from limited partners, one manager noted that only 10% of clients were asking any ESG questions, and half of these were just box ticking. As the IPE’s Pension Funds Perceptions Survey shows, ESG came last in a list of nine items that asset owners ask about. UN PRI members have clearly understood the serious threat to their credibility and will, from 2013, disclose what they are doing.

On communication, all the delegates agreed there were serious reputational challenges. Facebook was the focus of a lively debate and several delegates had read a recent article in the Rolling Stone magazine which claims that Mitt Romney “staged an epic wealth grab, destroyed jobs – and stuck others with the bill”.

But most seemed to think that positive stories, told confidently, were enough. Indeed, 80% of delegates said they were doing integration ESG well. Several panellists said that governance was fine, presumably not joining the dots between governance and the huge debate about tax avoidance.

It is difficult to get a man to understand something when his salary depends on his not understanding it, as the saying goes, but private equity leaders need to rise to this culture challenge.

For a sector fabled for its laser-sharp focus on numbers, and which often claims an inherently long-term sustainable approach, why is there no empirical data comparing private companies with listed equivalents on some really core ESG metrics such as energy efficiency and employee engagement?

And even the leading private equity companies were still talking about case studies, cherry-picking the positive cases. Only two speakers talked about problem cases. There is also no aggregated data on the sustainability performance of portfolio companies post exit. Actually, there was no data on even the basic resilience, as economic entities, of post-exit companies. Indeed, one panellist said he could see no reason why a company would stop sustainability reporting after listing – showing a surprising faith in the listed markets.

A handful of panellists were more realistic. One acknowledged that the sector, which now employs 25% of the UK workforce, needed to adopt a much more transparent approach. Another implicitly acknowledged that there had been little progress in “responsible restructuring”. Their answers – “a small company may be better than no company” and “we expect companies to follow national laws” – indicate a rather minimalist definition of responsible investing on one of the big issues. Some panellists knew of the International Labour Organisation and International Finance Corporation guidelines but no one had any convincing stories about whether they were being implemented.

Private equity could become the asset class of choice for long-term asset owners. But this will not happen until the sector becomes more demanding of itself. Incremental ESG change is absolutely fine in some areas but transformational change is needed on other fronts – for example, the management of high-impact, low-probability ESG events like the scandal in France with breast implants.

Involving informed yet constructive voices from outside the goldfish bowl does help, as the speaker on business and human rights proved. But, ultimately, it is a matter for the industry. Yes, they go to Davos. Yes, they appear in specialist media. And several have initiated work on responsible investing. But given their actual influence in the world, and given how insulated they are from self-criticism, they need to mix with experts who do not self-censor. That would show they have real confidence and maturity.

Raj Thamotheram is an independent strategic adviser, co-founder of PreventableSurprises.com and president of the Network for Sustainable Financial Markets