Two recent studies have shown how responsible investment and economic, social and governance (ESG) issues influence private equity fund managers’ behaviour on a daily basis.
A survey by PricewaterhouseCoopers, carried out on behalf of the United Nations-backed Principles for Responsible Investment Initiative, found that two-thirds of corporate buyers said that poor performance on ESG factors affected their willingness to buy a company, the price of a deal or prevented the deal altogether.
Corporate buyers are a way a private equity firm can ‘exit’ their investment in a company. After building the business so it is attractive to buyers, exiting earns the returns for private equity’s investors, usually pension and insurance funds. These investors are known as Limited Partners or LPs.
The PitchBook 2012 Private Equity ESG Survey Report found two-thirds of LPs increased their focus on ESG in the last three years because of concerns over governance, risk management and brand image.
In fact LPs are part of the private equity industry in Europe, more than 100 are Invest Europe members and they were deeply involved in the creation of Invest Europe Handbook of Professional Standards.
Launched in December, the Handbook proves how seriously the industry takes responsible investment. It is the first time ever that both fund managers and LPs have agreed a joint code of conduct.
Before, each group had separate rules and even though responsible investment was usual practice and had been for many years, the decision was made to come together and renew that commitment.
Responsible investment is not something that private equity is just paying lip service to. It is backing up that commitment.
For example, 1,000 Cleantech companies received private equity investment worth 10 billion euros between 2007 and 2011. Nearly half (47.6 percent) of private equity investment in the energy and environment sector are in Cleantech and 10-12 percent of all venture investments are in Cleantech (Invest Europe research).
Today, Invest Europe is holding its second Responsible Investment Summit in Brussels. We’re welcoming social investment pioneer Sir Ronald Cohen and EU Commissioner for Employment, Social Affairs & Inclusion Lazlo Andor.
The quality of these speakers and those on our panels, who are addressing hot issues such as environmental and governance concerns demonstrates how seriously the industry is taking this issue.
We’ll be live-tweeting the whole Summit and you can get involved by using #RISummit.