16. Sustainable Private Equity Investments Adam Heltzer
Responsible Investment, Partners Group
Development of Sustainable Investment in Private Equity Most investors wanting to take account of environmental, social, and governance (ESG) factors focused initially on listed equities investments. However, when it comes to managing ESG factors effectively, private equity investors have inherent corporate governance advantages compared to their public market peers. These provide opportunities to implement superior sustainable investment strategies and to enhance investment returns (see Figure 20).1 Private equity investors are increasingly recognising the expectation and opportunity for them to invest sustainably and are leveraging these inherent advantages. Currently, nearly 300 signatories to the UN-supported Principles for Responsible Investment (PRI) invest in private equity.
Implementation In private equity, there are three different types of investments: Figure 20. Comparison of Corporate Governance of Private Equity and Public Market Investors Private investors
Public investors
Information
Detailed: full access to information on firms during due diligence and ownership
Limited: Limited due diligence possible, only public information available to investors
Influence
Large, concentrated shareholdings: more control and better alignment of incentives
Limited: all UK FTSE 350 board director candidates proposed from 2006 to 2010 were approved by shareholders*
Long-term ownership: enables long-term approach to value creation. Value creation focus
Short: average duration of US & UK public investors’ holdings has fallen to 7 months.** Quarterly reporting focus.
Time horizon
Sources: *Cevian’s submission to Kay Review (2011); **“Patience and Finance,” speech by Andrew Haldane, Partners Group (2010).
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