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In working with private equity clients, we have found the
following steps to provide a useful framework for developing an
approach to ESG considerations:
Adopting an ESG policy;
Formalizing firm-level ESG committees to develop the firm's
strategic approach to ESG factors;
Evaluating internal training needs and begin to provide
training on specific ESG topics, as needed, to relevant
personnel;
Developing tools and guidance to support the incorporation of
ESG factors into due diligence on proposed investments;
Developing tools and guidance to support the incorporation of
ESG factors into engagement with, and management of, portfolio
companies; and
Developing strategies for communicating firm's ESG
initiatives to internal and external stakeholders.
As private equity firms begin to incorporate ESG concerns into
due diligence processes for potential investments, ESG
considerations may be formally incorporated into due diligence for
all investments, or may be integrated into due diligence for a
specific category of investments (i.e., investments of a
certain size, or investments in particular sectors). Such
efforts can be supported through materials and training that
providing guidance on sector-specific concerns.
Private equity firms also have significant opportunities to
integrate ESG factors into their management plans for portfolio
companies. In their engagements with portfolio companies, firms can
promote best practices, identify areas of concern, and monitor and
track performance over time. Firms may engage directly with the
CEOs and Boards of Directors of portfolio companies to identify ESG
risks and opportunities that can be addressed during the term of
the investment.
Finally, as private equity firms seek to demonstrate their
efforts to limited partners and other stakeholders, it is useful to
have established metrics that can be used to report on performance
improvements and value creation both at the firm-level and by
portfolio companies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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