The industry has moved from awareness toward outcomes
The ninth annual ESG Report from LGT Capital Partners analyses the activities of 344 managers globally (including 267 private equity managers) and assesses the improvements made in ESG practices. The new report shows that alternative investors are increasingly focusing on ESG outcomes in order to address key issues including climate change and diversity & inclusion (D&I).
Committed to outcomes
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Alternative investors increasingly focusing on outcomes as ESG integration deepens
Please learn more about the key findings from our 2021 report in the video.
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.
Private equity: Proportion of companies with diversity initiatives in place
ESG KIPs for co-investments indicate growing focus on D&I
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.
Private equity managers: Proportion of managers that address climate change in their ESG policy
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.
Proportion of managers that monitor greenhouse gas emissions
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 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).
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.
Tycho Sneyers, Managing Partner at LGT Capital Partners and board member at UN PRI
"Clear trend towards more outcome-oriented approaches"
“Our analysis shows a clear trend towards more outcome-oriented approaches in the way managers implement ESG across different asset classes. This reflects the significant ESG progress we have seen over the last five years. Issues, such as climate change, diversity and inclusion, are now very clear priorities for investors, and managers will need to clearly demonstrate how they are positively contributing to address these challenges.”