Accounting Firms

Private equity firms prioritising ESG, BDO finds

Some 29% of UK PE firms now have a dedicated individual or team responsible for embedding ESG into the investment process

More than half of UK private equity firms have made their investment strategies more ESG focused, despite Covid-19 threatening to halt progress as firms rallied to support portfolio companies throughout pandemic uncertainty, according to a recent survey from BDO.

BDO, which studied the environmental, social and governance policies of 100 private equity (PE) houses with UK operations, reported that PE firms are increasingly having to prove to investors that they take ESG issues seriously.

While the majority have started to make their investment portfolios more responsible from an ESG perspective, progress stalled slightly during COVID-19 as PE houses focused their attention on supporting portfolio companies through the worst of the pandemic.

In 2021, 57% of UK PE firms clearly set out the changes they have implemented to make their investments more ESG focused.

Some 55% of UK PE firms now adhere to the United Nations Principles for Responsible Investment (UNPRI), the world’s most-recognised set of ESG principles. This is up from 49% in 2020.

Meanwhile, 48% of UK PE firms now report in detail on the ESG impact of their investments, which remains unchanged from the previous year. Some 29% of UK PE firms now have a dedicated individual or team responsible for embedding ESG into the investment process – up from 25% in 2020.

Sarah Ziegler, private equity director at BDO, said: “The majority of private equity firms now understand that integrating ESG into their investment decisions can help boost returns. For this to work, portfolio companies should be able to clearly show how they follow ESG guidelines.

“Some firms are doing this well, but there are still some that need to improve. The uncertainty experienced in the heat of the pandemic was felt across the industry and that understandably required critical attention, however LPs will soon start to notice if PE houses start falling behind on their ESG commitments.”

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