It is undeniable that sustainable investing is becoming more important worldwide. The many benefits are clear, and the question is not whether or not to invest in sustainable assets, but how much you should be investing in them. Across industry and government alike, leaders of all kinds are increasingly aware of how important it is that ESG performance improves. The emphasis given to ESG by each and every firm in our industry matters and will be under the spotlight. Headline risk for firms with poor ESG credentials has grown significantly in recent years, and window dressing will not be enough to overcome public scrutiny. We are now seeing that strict regulatory requirements are taking the place of, or are being added on top of, voluntary reporting schemes to ensure that private firms do their part, creating both challenges and opportunities.
It is not only regulators that are looking for clear ESG disclosures. Investors are more and more looking to funnel their money into sustainable investments. And this is not just an ethical decision, as ESG funds in Europe are being seen as a way to outperform the market, providing a clear opportunity for firms that take ESG seriously. At the same time, institutional investors, due to different types of regulation and/or demand from beneficiaries, boards, society, etc. are obliged to do consolidated ESG reporting (which may differ from one investor to another) covering their entire portfolio. As a lot of institutional investors report timely and to the general public, ESG reporting must be of high quality.
For the private equity and venture capital (PE/VC) industry, there is a clear need for greater transparency of the firms’ ESG practices and strategy, and the impact of both the firms themselves, and their portfolio of investments, on “people and planet”. Increased sustainability reporting will allow investors to track companies’ performances and have a better understanding of their potential future value beyond current financial performance.
These Invest Europe ESG Reporting Guidelines will ensure that investors, and to a certain extent other stakeholders, are able to understand the GP’s approach to sustainability and, for each relevant fund, the main impacts of its investments on relevant sustainability factors.
This voluntary guide has been put together with the help of industry practitioners (GPs, LPs1, advisers and portfolio company experts) in various jurisdictions across the EU and beyond, and based on a number of industry surveys, to ensure that the reporting recommendations reflect not only current market practices and the realities facing practitioners, but also the expectations and needs of investors. In preparing these Guidelines we have aimed to create the most advanced and user-friendly guidance on sustainability reporting in the European private capital sector. GPs who commit to report in accordance with these Guidelines will be reporting in accordance with industry-wide recognisable practice.
These Guidelines should be considered alongside the Invest Europe Investor Reporting Guidelines, and should be regarded as effective for reporting periods beginning on or after 1 January 2023.
As jurisdictions and international bodies are largely still in the process of reviewing and/or completing their reporting obligations, our Guidelines will develop over time and further updates are anticipated.
1. The terms General Partner, GP or manager, and Limited Partner, LP or investor are used interchangeably throughout this guide.
Invest Europe would like to thank the following members of the ESG Reporting Guidelines Working Group for their valuable input during the development of the Guidelines (in alphabetical order per firm):
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