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Alternatives managers continue to show improvements in ESG integration

The seventh edition of LGT Capital Partners annual ESG report assesses some 304 managers globally, grading them on how successfully they have integrated environmental, social and governance (ESG) considerations into their investment activities. Beyond assessing managers, this year’s study also presented KPIs on companies in the firm’s co-investment and private debt portfolios.

ESG is high on the agenda of alternative asset managers

ESG is high on the agenda of alternative asset managers

Please learn more about the key findings from our 2019 report in the video.

Private equity managers: Continued ESG progress globally

Private equity managers have improved further

  • Proportion of managers rated 1 or 2 has increased to 65%, up from 58% in 2018

  • Proportion of managers rated 4 has decreased to 14%, down from 17% in 2018

How the regions compare

Progress everywhere, but Europe still leads

  • 79% of private equity managers in Europe are rated either excellent or good

  • In Asia 59% of the private equity managers are rated excellent or good, the US trailing with 49% in this category

A look at the Asian private equity managers

Asia swiftly developing strong ESG practices

  • The proportion of higher rated managers (excellent or good) in Asia has increased considerably in just one year

  • The cohort grew by 9 percentage points to 59% of all Asian managers since last year

A look at US private equity managers

US moving forward on ESG

  • Long seen as the “laggard” on ESG the US is now clearly moving forward.

  • The proportion of managers rated excellent or good on ESG has increased to 49%, a jump of nine percentage points since last year.

  • Over the last six years the share of managers rated 4 – effectively doing nothing on ESG – has decreased by 35 percentage points.

Private equity: ESG practices in Europe

Private equity: Institutionalized ESG efforts prevail in Europe

  • With 79% achieving ratings of excellen or good, it is now largely assumed that private equity managers in Europe take a systematic approach to managing ESG risks and capturing the ESG opportunities

  • Only a small minority of managers, the 21% rated 3 or 4, have yet to develop institutional approaches to managing ESG considerations in their portfolio companies

Private equity managers - size is still a factor in ESG uptake

However size not the decisive factor for ESG uptake

  • The large managers in our portfolios tend to be very strong on ESG

  • 78% of large managers and 95% of mega managers having institutionalized practices in place

  • 56% and 62% of small and mid market managers, respectively, earned ratings of excellent or good.

Strong level of ESG commitment in private equity across the four themes

Private equity managers ESG practice improving in all four areas of focus

  • The greatest proportion of managers have received top marks for their commitment to ESG, with 72% of managers receiving ratings of excellent or good

  • We also see improvement on reporting as 57% of managers have been rated excellent or good for reporting, which is up from 50% last year

How private equity managers think about diversity

Does the manager have a diversity policy?

  • Workforce diversity has become an increasingly important topic in both ESG investing and business operations

  • 45% of our private equity managers have a diversity policy in place

Worksforce diversity increasingly important for private equity managers

Does the private equity manager consider diversity in its investment process?

  • 36% of private equity managers consider diversity and inclusion at board level in their investment process

Hedge fund managers - first manager rated as excellent

Increase in the proportion of top-rated managers

  • This year’s assessment of hedge fund managers shows an increase in the proportion of top-rated managers to 15%, up from 9% last year.

  • At the same time, the assets invested by us with those managers rose to 15% of total hedge fund assets, up from 9% last year.

  • For the first time a quantitative equity manager has been rated as excellent

Hedge fund managers - noticeable regional differences

ESG integration by hedge fund managers - Europe leading

  • ESG topic is slowly gaining relevance in the US, 14% of US hedge fund managers are now rated excellent or good

  • Europe remains unchanged, with 24% of hedge fund managers still rated excellen or good

  • Asia continues to trail with no managers achieving our top two ratings

 

Assets invested with hedge fund managers rated four are now 4%, compared with 32% in 2013

ESG Report – scope and methodology

LGT Capital Partners has been publishing its ESG Report annually since 2013. The ESG Report forms part of the firm’s larger ESG due diligence, monitoring and manager engagement process. The assessment serves a two-fold purpose. First, it shows our investors the extent to which managers are considering ESG factors in their investment, ownership and reporting practices. Second, it facilitates our engagement with managers on ESG, highlighting excellence in implementation and flagging areas for improvement. LGT Capital Partners’ analysis is based on assessment of managers across four key criteria: commitment to ESG through the development of specific policies or adherence to broader industry standards (such as UN PRI); the extent to which ESG is formally integrated into investment processes; ownership philosophy and the extent to which managers are active in defining the ESG practices of investee companies; and their reporting on ESG (at both portfolio company and aggregate fund levels). Managers are then assigned an overall rating on a scale of one to four, where one indicates ESG excellence and four indicates little or no institutionalized commitments to ESG practices.

"High expectations for SDGs"

“We are encouraged to see progress on ESG in Europe, the US and Asia, albeit from very different starting points. One theme that clearly stands out this year is the growing importance of the SDGs. Investors are increasingly turning to the SDGs to make their sustainable investment activities more outcome orientated, and they have high expectations for the goals.”

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