The industry has moved from awareness toward outcomes

European managers continue to lead on ESG practices, as 83% have achieved the top ratings of 1 or 2, compared with 70% for Asia and 47% for the US.

Like with climate change and other ESG practices, managers take a
variety of approaches to integrating D&I in their investment process.

For example, one of our managers, the global software investor Hg,
embedded D&I factors directly into a target company’s financing
package in order to ensure accountability across stakeholders.

This is the third year that we are reporting on ESG KPIs for our
co-investments. The number of participating companies has
increased again and now stands at 50. The three-year time span
enables us to make certain observations on trends within the
portfolio

Within social topics, it is clear that diversity initiatives are becoming
more important for many companies. Nearly two-thirds (64%)
of our portfolio companies have initiatives in place that focus on
diversity at the workplace, up from 59% two years ago.

Approaches vary across managers, with some having very clearly
articulated policies and targets, while others are still developing
their process.

For example, one middle market European buyout
manager spells out its ambitions to tackle climate change in terms
of measuring and reducing its own emissions, with the aim of
becoming a carbon neutral company.

We observe that 28% of managers actively measure the CO2
emissions of their portfolio companies.

It shows the depth of their commitment to managing climate change risk, as they follow up on their initial risk assessment with ongoing monitoring.

Overall, we would expect these numbers to increase in the future, as more
managers respond to the need for better data on climate change
risks and opportunities.

The positive ESG trend continues across our long-only portfolios, as
now almost half of these long-only managers are rated 1 or 2 (vs
44% last year).

The chart shows how our flagship LGT Sustainable Bond Global
Strategy impacts the SDGs relative to its benchmark, using our
framework, which is based on a wide range of metrics linked to
key characteristics of the sovereign and corporate borrowers in our
portfolio.

The chart shows that the LGT portfolio outperforms the
benchmark on 15 of the 17 SDGs, and by a wide margin on several
measures, including SDG 7 (Affordable and Clean Energy), SDG 10
(Reduced Inequality) and SDG 13 (Climate Action).