EUROPE - Private equity investors are increasingly implementing formal environmental, social and governance (ESG) policies, the French research centre Novethic has found.
Nearly one-third of the investment managers surveyed have implemented a formal ESG integration policy, while 35% plan to do so in the next year, a report found. Furthermore, nearly one-third of the survey respondents have signed the UN Principles for Responsible Investment (PRI) in the past three years, with quarter planning to do so in 2011.
Novethic said the driving force behind the ESG integration was to be able to identify potential risks before investing in a company, as the assessment of ESG criteria provided further information about the target companies.
Further, half of companies said that clients were expressing a preference for managers formal policies that take ESG criteria into account prior to investing their assets, with 60% of the companies surveyed having already received requests of this type and others expecting to receive some during their future fund-raising campaigns.
While nearly half of the firms surveyed believe that ESG integration can help create value for invested companies by implementing sustainable development policies, this aspect was not, with a few exceptions, currently used in the valuation of companies.
The application of ESG approaches remains in its infancy, as at 72%, the majority of firms continue to favour direct dialogue between investors and companies on sustainable development issues. Less than one-quarter managers use specific ESG assessment grids, ESG audits or systematic ESG questionnaires.
Nevertheless, nearly half of the investment managers surveyed state that they have already refused to invest in a company due to ESG-related issues.
However, few private equity managers carry out any detailed monitoring on their holdings using adapted indicators once they have invested. Yet, this is precisely what is needed to promote the value of their ESG performance, says Novethic.
The survey, conducted with the support of investment firm KKR in partnership with the AFIC Sustainable Development Club, CDC Entreprises and FSI France Investissement, surveyed a total of 74 firms representative of the private equity market in France with total investments of more than €2.8bn in 2010 took part.
Meanwhile, a survey by the US chamber of commerce in Germany, AmCham Germany, found that companies in the region increasingly view sustainability as a change to distinguish themselves from the competition and improve their image.
Sustainable economic management was already part of company strategy for 70% of survey respondents, while over 80% pursued specific sustainability targets in their operations.
However, while most companies progress very well on ecological factors, there is a lot of catching up to do with regard to diversity and flexibility in jobs in the social sustainability category.