European GPs get top ESG marks, but diversity remains sore point - survey

ASI's private equity responsible-investing survey is in its sixth year, and polled 104 private equity managers globally (including 59 European, 33 North American and 12 Asian managers). The firm uses the survey to rate its GPs on ESG matters with a three-colour system (red/yellow/green).

European private equity firms continued to lead when it comes to ESG, with a higher response rate to the survey and 59% of respondents awarded a green rating, versus 41% getting a yellow rating. By comparison, only 3% of North American managers received a green rating, with the rest equally split between red and yellow. In Asia, the majority (75%) of ASI's managers sit in the yellow rating.

The Covid-19 crisis has increased the ESG focus for some respondents – particularly for social aspects, such as supply chain, employee wellbeing and engagement. However, ASI noted that the majority of managers believe that the pandemic has had a limited effect on their ESG focus.

That said, 67% of respondents drove at least one positive ESG change during the year, with many implementing several initiatives, ranging from becoming a signatory of the Principles for Responsible Investment for the first time; disclosing and reporting on carbon emissions; including climate risk analysis in diligence and investment papers; hiring dedicated ESG teams; developing equality and diversity policies; and more. Again, only a quarter of North American respondents said they had implemented initiatives to improve ESG during the year, whereas 92% of European managers gave the same answer.

ASI did note that despite these encouraging results, climate change and diversity are two areas where more progress needs to be made. Only 36% of GPs surveyed have processes to manage climate-related risks, and only 40% of ASI's co-investments monitor carbon footprint. Furthermore, only 23% of respondents have clear diversity targets in their portfolio companies, although 47% are intending to incorporate these in the near term.

On the positive side, ASI noted that 52% of its co-investments have female board representation, and 64% track non-gender diversity metrics.

The survey also highlights how manager size correlates with better ESG ratings. In Europe, large managers (usually managing funds larger than €5bn) had a higher average score than mid-market (€1-5bn fund size) managers, which themselves performed better than lower-mid-market managers.

ASI highlighted that the result was mostly attributable to greater investment in ESG resources, reporting tools and dedicated ESG teams by larger managers. However, ASI noted that "larger managers do not necessarily have a greater ESG cultural buy-in than smaller managers", stressing that proactive approaches can yield notable improvements regardless of team size.

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