ESG Report – LGT Capital Partners does “deep dive” into growing ESG regulation

In this year’s ESG Report, we focus on the EU’s Sustainable Finance Disclosure Regulation (SFDR), which is the most wide-reaching ESG regulatory framework currently implemented. In each of our strategies – private markets, insurance-linked strategies, hedge funds, listed equity and fixed income – we look at the various ESG approaches we apply to meet EU requirements. In doing so, we reveal the complexity as well as the rigor of different ESG frameworks, as each asset class has its own challenges to overcome in achieving compliance.

Raising the ESG bar

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Private equity ESG ratings improving globally

The proportion of private equity managers assessing climate change factors is growing

A growing percentage of private equity managers have implemented a DEI policy

ESG ratings of hedge funds continue to improve globally

ESG Report – scope and methodology

LGT Capital Partners has been assessing its managers on ESG since 2013, as part of the firm’s larger ESG due diligence, monitoring, and manager engagement process. The assessment serves a two-fold purpose. First, it shows the extent to which investment 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: (1) commitment to ESG through the development of specific policies or adherence to industry standards, (2) the extent to which ESG is formally integrated into investment processes, (3) ownership philosophy and the extent to which managers are active in defining the ESG practices of investee companies (4) and their reporting on ESG (at both portfolio company and aggregate fund levels). Managers are then assigned an overall rating on a scale of 1 to 4, where 1 indicates ESG excellence and 4 indicates little or no institutionalized commitments to ESG practices.

Tycho Sneyers, a Managing Partner at LGT Capital Partners and PRI board member

"ESG approaches continue to progress, in line with increasing regulation."

"There has been significant progress in how alternative investment managers approach ESG issues in recent years, and this is a trend that has continued over the last 12 months. This shift has been largely supported by regulators demanding greater clarity in how ESG is defined and applied, particularly the implementation of the EU’s Sustainable Finance Disclosure Regulation (SFDR), which is the most wide-ranging ESG regulatory framework currently implemented."