Pitchbook recently released some interesting results of its environmental and social governance survey of PE firm policies. The following is a review of some of the more salient points.
Existance of an Environmental and Social Governance (ESG) Policy
First, Pitchbook asked the 104 general and limited partners whether their firm had an ESG policy. Unsurprisingly, from 2012 to 2013 the number of respondents with a yes answer increased from about 30 percent in 2012 to 60 percent in 2013.
Interestingly, firms out of Europe tend to spend more time developing a policy. Overall, almost 80 percent of the European firms’ respondents indicated that their firm had an ESG policy. In the U.S., about 50 percent of respondents gave an affirmative answer.
Timing of ESG Implementation
If you were asked which continent had the highest percentage of firms answering “more than 5 years ago” to the question in regard to when their ESG policy was implemented, which continent would you guess? Surprisingly, about 25 percent of North American companies answered affirmatively compared to about 15 percent for European firms.
Perhaps the adage is true — European firms really do followed the American lead. Also interesting, the number of firms stating that they “do not have ESG initiatives” dropped from about 55 percent in 2012 to about 25 percent in 2013.
Driving Force of ESG Efforts
Unsurprisingly, respondents gave “Environmental and social consciousness” as the number one reason for implementing an ESG policy (multiple factors could be selected). Interestingly, this response only gained a couple percentage points since 2012, rising to 73 percent in 2013. In second place at 69 percent is “Limited Partners”, down from 74 percent in 2012.
The remaining responses, in popularity order, include “Risk Management” (64 percent), “Brand/Image” (60 percent), “Corporate Governance” (45 percent), “Portfolio Companies” (36 percent), “Government Regulation” (31 percent), “Employee Interests” (29 percent), “Cost Management” (24 percent), “Operational Efficiency” (24 percent), and “Competitors” (11 percent).
Timing of ESG Issue Consideration
Lastly, when would you guess most PE professionals consider ESG issues? Likely unsurprising, of the four broad PE periods, “Fundraising” and “Due Diligence” come out on top. In 2012, about 85 percent of respondents indicated that ESG issues were considered in doing due diligence. Interestingly, that number dropped to 80 percent in 2013.
The opposite trend occurred for fundraising. In 2012, about 70 percent of respondents indicated that ESG issues showed up during this phase. In 2013, that number jumped to about 80 percent.
On the bottom end, PE professionals generally give less attention to ESG issues during the “Holding” and “Exit” periods.
Conclusion
Overall, Pitchbook’s recent survey on firms’ implementation of environmental and social governance policies provides some interesting insight into the thinking of private equity professionals on the subject.
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