1. Cash with a Conscience: ESG Reporting Practices in the Private Equity Industry
2 November 2018
Hanneke Mol, Social & Environmental Consultant
Arcadis NL

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4. Environmental, Social and Governance (ESG)
Mission: To promote environmental, social and governance considerations in project financing strategies and investments decisions, as well as project design and performance.
Environmental and Social Due Diligence (ESDD);
Environmental and Social Impact Assessments (ESIA);
Environmental Social Action Plan (ESAP) Operationalization & Implementation;
General ESG business advisory to clients;
Training, capacity building and other kind of requests.
Clients
Development/Multilateral Financial Institutions (DFI/MFI)
Commercial Investors
Project Developers/Multinationals
Real Estate Developers
For Arcadis, ESG is mostly related to International Project Finance (IPF) performing the above services for either the borrowing or lending party, throughout the different phases in the IPF cycle:
Plan
Prepare
Finance
Build
Maintain

5. Today’s paper ESG disclosure practices in the private equity industry
Differences between Private Equity Fund Manager (GPs) and Limited Partner (LPs) approaches to ESG management and reporting
Why do such differences exist? (And is this necessarily a problem?)
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

6. Private equity Limited Partners Private equity firm General Partner
- Pension funds
- Insurance companies
- University endowments
- Foundations
- (International) Financial Institutions
- Etc.
Limited Partners
Private equity firm
General Partner
Fund x
Fund x
Fund x
Investment x
Investment x
Investment x
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

7. Background to today’s paper
Small-scale exploratory study in 2015
Hypothesis: there is a mismatch between the approach to sustainability adopted by PE Fund Managers (GPs) and their investment partners (LPs)
Findings corroborated this hypothesis. (But: some limitations to the study)
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

8. Cash with a Conscience (2015)
Small-scale exploratory study
Web-search, reviewing the websites, annual reports and/or sustainability reports of 50 GPs and 50 LPs
33 headquartered in North America, 14 in Europe, 3 in the Asia-Pacific region
Of the Lenders included in the sample: 90% regularly monitored and reported on their ESG performance; 70% were aligned to the GRI framework; 61% published their ESG report on the GRI database.
A similar level of transparency was not found in the Private Equity industry, and GPs less committed to ESG disclosure than LPs
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

9. Visibility of sustainable investment policy on website
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

10. Annual sustainability reporting
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

11. Reporting standards and principles
PEGCC = Private Equity Growth Capital Council
UNEP FI = United Nations Environment Programme Finance Initiative: : A global partnership between UNEP and the financial sector. Over 200 institutions, including banks, insurers and fund managers work with UNEP to understand the impacts of environmental and social considerations on financial performance.
INCR = Investor Network on Climate Risks: A network of 100 institutional investors committed to addressing the risks and opportunities resulting from climate change and other sustainability challenges.
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

12. UN PRI signatories
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

13. Why these differences? Regulation? Lack of financial incentives?
Corporate culture?
Board structure?
Cultural values and societal perceptions of corporate responsibility?
Investor pressure?
Stakeholder exposure? …?
Paper intended as a discussion piece
Theoretical exploration as an impetus for further research
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

14. Institutional theory
ESG integration and reporting shaped by broader social structures  importance of national, cultural and institutional contexts
Influence of:
Legal and regulatory framework
Level of corporate discretion
Primacy of shareholder interests vs. more stakeholder-oriented business climate
Monitoring by civil society organizations
Prominence of labour unions
Cultural values
I.e.: connection between ESG reporting practices and institutional framework
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

15. Legitimacy theory
Relationship between ESG reporting and the expectations of shareholders and wider stakeholders  ESG reporting as an instrument of legitimacy- seeking
Opposing or incongruent value systems
Stakeholder exposure and societal pressure to manage E&S issues
Public visibility and accountability
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

16. Signalling theory
ESG reporting signals effective and active management of E&S risks
Link between ESG reporting and ability of organizations to generate financial return
LP expectations as an incentive for enhanced ESG reporting by GPs?
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018

17. Where from here? Sustainability of investments
Reputation of private equity
Credibility of the ESG monitoring regime
Risk management, value creation
ESG transparency vs. ESG performance
Title: Cash with a Conscience: ESG Disclosure Practices in the Field of Private Equity
Date: 25 October 2018