ESG throughout the investment life cycle

The main focus of this guide is on reporting during the actual investment phase. Yet, as a starting point, it is important for fund managers to take a step back and to consider which actions could, or should, be taken at earlier stages of their business cycle to ensure that ESG is (well) integrated across the entire life cycle of the fund. Ultimately, all these decisions will have an impact on what a manager can and/or should report on to their investors.

Whether for GPs, investors, or portfolio companies, ESG practices affect all stages of a firm’s life cycle. Firms that consider ESG at every stage are better prepared to harness its full potential and are not just reacting to it on an ad hoc basis. Many times, firms that do not consider ESG from the very start (e.g., during due diligence versus the ownership stage), find it hard to incorporate it in a piecemeal fashion and thus spend a lot more time and effort in implementing it. Implementing ESG practices at the early stage of a fund life cycle can help make the most of the journey and prevent any surprises later.

Developing an ESG strategy for a firm can differ for a variety of factors. This chapter provides an overview of topics and actions that could be considered at each stage of the investment life cycle (see Figure 1). Naturally, these will depend on the size, geography, and the sector of the firm.

GPs and investors could look to utilise this model (described in more detail in the sections below), reviewing where they currently sit within their firm life cycle and allocating resources to the appropriate areas, conducting due diligence at each stage to understand where they are currently performing well, and where they could look to improve. This exercise is complemented by the information on regulation given in the regulatory mapping section of this guide and then helps pick the right KPIs as listed in the ESG reporting template.