Social and environmental considerations are a new priority for private equity firms

11 March 2019 4 min. read

The private equity sector across the globe is among those growing at a rapid rate, but just how responsible are the practices in the sector when it comes to environmental sustainability? PwC argues that private equity firms across the globe are increasingly aware of their environmental responsibilities. 

The Big Four accounting and advisory firm has released its fourth report in six years around sustainability in global private equity, and the latest report is based on a survey conducted amongst 162 firms across 35 countries. The findings of the report are overwhelmingly positive.

While the sector has traditionally been associated with a focus on the financial aspect of things, survey results revealed that more than 80% of the firms interviewed indicated that matters of environmental, social and governance (ESG) issues are discussed in their boards at least once a year.

ESG issues important to PE investment decisions

Perhaps an even more promising statistic is the proportion of firms paying attention to the United Nations Sustainable Development Goals (SDGs), with nearly 70% of the firms indicating that SDGs that applied to their area of operations and investment were a high priority.

As per the report, ESG and SDG considerations have come to play a role in larger organisational affairs below the board level as well. From the outset when firms are selecting the most suitable deal to the monitoring and reporting stages of a project, these factors have a major impact on decision-making.

When asked about the causes for this increase in responsibility, the highest number of firms responded that ‘risk management’ was the primary motivation. This has been the main driver of responsible practices for a number of years now, although the share has declined from 44% in 2016.

Maturity of approach to SDGs

A promising highlight of the study is that ‘corporate values’ was cited by as many as 28% of the firms as a motivation behind considering ESG and SDG factors, which indicates that the senior ranks of these firms themselves are beginning to see the importance of keeping practices sustainable. 

Meanwhile, external sources of motivation are losing their significance gradually, exemplified by the fact that pressure from Limited Partners now plays a role for 6% of the firms as opposed to 17% in 2016, a scenario that might be sttributed to greater responsibility from the General Partners themselves.

The increased value for such considerations is beginning to manifest itself in concrete measures being taken by firms across the globe. 35% of the firms, for instance, now have specialised teams in place to examine the responsibility of a deal, as compared to 27% in 2016.

Increase in dedicated teams for responsible investment

91% of the firms surveyed have developed a comprehensive ESG policy and adhere to it while making deals. Within ESG considerations, human rights appear to be an issue that has gained particular traction, given that 60% of the firms have human rights measures being implemented.

Nevertheless, environmental sustainability remains top priority for a number of firms, given that 83% of the firms surveyed had included climate risks and considerations in their business portfolios. Some firms are even engaged in collaborative ventures with the UN and other agencies to promote sustainability. 

In South Africa, sustainability is becoming an increasingly pertinent issue as the economy looks to rebuild itself. The President recently announced the restructuring of Eskom in line with considerations to encourage more investment in renewable energy.